Article contents
Investment Shocks and Asset Prices: An Investment-Based Approach
Published online by Cambridge University Press: 04 October 2019
Abstract
We propose a new approach, based on investment data, to determine firms’ return exposure to investment-specific technology (IST) shocks. When applied to U.S. data, we find that, in contrast to the pattern estimated from empirical IST proxies, value firms have higher exposure to IST shocks than growth firms. When applied to simulated data from existing theoretical models, our approach reveals that existing empirical findings may result from measurement errors in the IST proxies. Importantly, our simulation analysis uncovers the key role played by investment data in determining the economic mechanism through which IST shocks affect cross-sectional asset prices.
- Type
- Research Article
- Information
- Journal of Financial and Quantitative Analysis , Volume 55 , Issue 8 , December 2020 , pp. 2665 - 2699
- Copyright
- Copyright © Michael G. Foster School of Business, University of Washington 2019
Footnotes
We thank an anonymous referee, Hendrik Bessembinder (the editor), Jack Favilukis, Vito Gala, João Gomes, Alessandro Graniero, Haibo Jiang, Jiri Knesl, Jun Li, Erik Loualiche, Georgios Skoulakis, Amir Yaron, and Harold Zhang; seminar participants at Boston University, Cheung Kong Graduate School of Business, Central University of Finance and Economics, the Chinese University of Hong Kong (Shenzhen), Fudan University, Renmin University of China, the University of Arizona, the University of British Columbia, and the University of Pennsylvania (Wharton); and conference participants at the 2016 China International Conference in Finance, the 2016 Summer Institute of Finance, the Society for Financial Studies (SFS) Cavalcade North America 2018, and the 2019 BI Norwegian Business School–Swedish House of Finance (BI-SHoF) Conference for valuable comments and discussions. We are especially grateful to Ryan Israelsen for sharing with us the quality-adjusted equipment price series.
References
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