Ratios of Changes : How Real Estate Shocks Did Not Affect Corporate Investment

Real-estate price shocks did not positively associate with corporate investment from 1992 to 2008, as suggested by Chaney, Sraer, and Thesmar (2012). Most of their coefficients explain changes in their firm-scale normalization (PP&E), not changes in their variables of interest (real-estate and investment). This problem cannot be cured by an additive 1/PP&E control. By working with “ratios of changes” instead of “changes of ratios,” denominator-caused scaling volatility can be purged, and their estimated coefficients then turn negative. My paper also discusses the lack of shock identification and the effects of time trends. A sample extended to 2018 also shows no effect