We examine the asset pricing implications of a neoclassical model of repeated investment and disinvestment. Prior research has emphasized a negative relation between productivity and equity risk that results from operating leverage when capital adjustment is costly. In general, however,...

Investment-based asset pricing research highlights the role of irreversibility as a determinant of firms' risk and expected return. In a neoclassical model of a firm with costly scale adjustment options, we show that the effect of scale flexibility (i.e., contraction and expansion options) is to...

This paper develops a tractable general equilibrium with endogenous firm capital structure decisions driven by changes in economic uncertainty. The model enables a critical assessment of standard paradigms of corporate finance in order to highlight empirically important directions for...

We study an economy subject to recurrent disasters when agents have imprecise information about the frequency and duration of the disasters. Uncertainty about the persistence of states can lead to seemingly pessimistic behavior in bad times and optimistic behavior in good times. In a disaster,...

We exploit regional variations in exposure to heat stress to study if physical climate risk is priced in municipal and corporate bonds as well as in equity markets. We find that local exposure to damages related to heat stress equaling 1% of GDP is associated with municipal bond yield spreads...