Using asset prices I estimate the marginal value of capital in a dynamic stochastic economy under general assumptions about technology and preferences. The state-space measure of marginal q relies on the joint measurability of the value function, i.e. firm market value, and its underlying firm...

A standard assumption of structural models of default is that firms' assets evolve exogenously. In this paper, we examine the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, fi rm-level variables that proxy for...

This paper examines to what extent stock market anomalies are driven by firm fundamentals in an investment-based asset pricing framework. Using Bayesian Markov Chain Monte Carlo (MCMC), we estimate a two-capital q-model to match firm-level stock returns, instead of matching portfolio-level...

We scrutinize the impact of dividend policy on stock price volatility by considering the seminal paper of Baskin (1989). In this context, we examine the relationship between volatility and three dividend policy indicators, dividend yield, dividend payout, and stock repurchases, for 1,221 firms...

We take a simple q-theory model and ask how well it can explain external financing anomalies, both qualitatively and quantitatively. Our central insight is that optimal investment is an important driving force of these anomalies. The model simultaneously reproduces procyclical equity issuance...

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...

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create...

We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in...

We explore the implications of shocks to expected future productivity in a setting with limited enforcement of financial contracts. As in Lorenzoni andWalentin (2007) optimal financial contracts under limited enforcement imply that to obtain external finance firms have to post collateral in...

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create...