Skip Navigation



RFS Advance Access published online on January 29, 2007
Review of Financial Studies, doi:10.1093/revfin/hhm013
This Article
Right arrow Advance Access manuscript (PDF)
Right arrow All Versions of this Article:
20/5/1461    most recent
hhm013v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Novy-Marx, R.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Copyright © The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies.

An Equilibrium Model of Investment Under Uncertainty

Robert Novy-Marx
University of Chicago

rnm{at}ChicagoGSB.edu

We analyzes the optimal investment decisions of heterogeneous firms in a competitive, uncertain environment, characterizing firms' investment strategies explicitly and deriving closed form solutions for firm value. Real option premia remain significant, and are even unmitigated relative to the standard partial equilibrium model when both are calibrated to observables. Firms consequently delay investment, choosing not to undertake some positive NPV projects. We compare competitive behavior to that of a strategic monopolist, and quantify the welfare loss associated with monopoly. Finally, the model predicts business cycle dependence to firm returns, with returns negatively skewed during industry expansions but positively skewed in industry recessions.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.