We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher...

Leading production-based asset pricing models predict that the sources of fluctuations in real investment and (scaled) stock prices are the same. Yet, extant empirical findings point to a large difference in these sources. We revisit this empirical question by deriving a present-value relation...

This paper extends Lucas (1978) to a production economy with two capital goods. It is an RBC model in which each unit of investment requires a new idea, an quot;optionquot;. When options are scarce, new capital is harder to put in place and the value of old capital rises. Thus the stock market...

Macroeconomic and sector-specific shocks exert differential effects on investment in disaggregate sectoral data. The response to macroeconomic shocks is hump-shaped, just as in aggregate data. The effects of sectoral innovations decrease monotonically. A calibrated model of investment with...

This paper extends Lucas (1978) to a production economy with two capital goods. It is an RBC model in which each unit of investment requires a new idea, an "option". When options are scarce, new capital is harder to put in place and the value of old capital rises. Thus the stock market and...

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher...

Macroeconomic and sector-specific shocks exert differential effects on investment in disaggregate sectoral data. The response to macroeconomic shocks is hump-shaped, just as in aggregate data. The effects of sectoral innovations decrease monotonically. A calibrated model of investment with...

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher...

Aggregate investment and consumption have heterogeneous cyclical implications on firm-level earnings and the cyclical earnings patterns are associated with future abnormal returns. Earnings cyclicalities give rise to an information channel through which anticipated changes in investment and...