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What went wrong? Why did seemingly rational bond investors continue to purchase Puerto Rican debt with only a modest risk premium, even though the macroeconomic fundamentals were dismal? Why did financial markets fail to exercise market discipline and restrict capital flows to Puerto Rico? Given...
Persistent link: https://www.econbiz.de/10012890192
Is real investment fully determined by fundamentals or is it sometimes affected by stock market misvaluation? We introduce three new tests that: measure the reaction of investment to sales shocks for firms that may be overvalued; use Fama-MacBeth regressions to determine whether overinvestment...
Persistent link: https://www.econbiz.de/10010264073
When investment is irreversible, theory suggests that firms will be "reluctant to invest." This reluctance creates a wedge between the discount rate guiding investment decisions and the standard Jorgensonian user cost (adjusted for risk). We use the intertemporal tradeoff between the benefits...
Persistent link: https://www.econbiz.de/10010264335
. However, a consensus estimate remains elusive. We develop an estimation strategy that filters panel data in an original way …
Persistent link: https://www.econbiz.de/10010261229