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Irreversibility, Uncertainty, and Cyclical Investment
TLDR
In this article, the authors studied the optimal timing of real investment under the assumption that investment is irreversible and that new information about returns is arriving over time and showed that investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of information gained by waiting.Abstract:
The optimal timing of real investment is studied under the assumptions that investment is irreversible and that new information about returns is arriving over time. Investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of information gained by waiting. Uncertainty, because it increases the value of waiting for new information, retards the current rate of investment. The nature of investor's optimal reactions to events whose implications are resolved over time is a possible explanation of the instability of aggregate investment over the business cycle.read more
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Policy Uncertainty and Corporate Investment
Huseyin Gulen,Mihai Ion +1 more
TL;DR: In this paper, a strong negative relationship between firm-level capital investment and the aggregate level of uncertainty associated with future policy and regulatory outcomes is found, and the relation between policy uncertainty and capital investment is not uniform in the cross section, being significantly stronger for firms with a higher degree of investment irreversibility and for firms more dependent on government spending.
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Political Uncertainty and Corporate Investment Cycles
Brandon Julio,Youngsuk Yook +1 more
TL;DR: In this paper, the authors investigate several potential explanations and find evidence supporting the hypothesis that political uncertainty leads firms to reduce investment expenditures until the electoral uncertainty is resolved, which is an important channel through which the political process affects real economic outcomes.
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Measuring Economic Policy Uncertainty
Scott R. Baker,Nicholas Bloom,Nicholas Bloom,Steven J. Davis,Steven J. Davis,Steven J. Davis +5 more
TL;DR: The authors developed a new index of economic policy uncertainty (EPU), built on three components: the frequency of newspaper references to economic policy uncertainties, the number of federal tax code provisions set to expire, and the extent of forecaster disagreement over future inflation and government purchases.
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Fluctuations in Uncertainty
TL;DR: The authors found that both macro and micro uncertainty appears to rise sharply in recessions and the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions.
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Oil Price Shocks and Stock Market Returns: Evidence from Oil-Importing and Oil-Exporting Countries
Li Yang,Chongfeng Wu,Yudong Wang +2 more
TL;DR: In this paper, a structural VAR analysis of the stock market response to oil price shocks is presented, showing that the magnitude, duration, and even direction of response by stock market in a country to price shocks highly depend on whether the country is a net importer or exporter in the world oil market, and whether changes in oil price are driven by supply or aggregate demand.
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Book
Optimal Statistical Decisions
TL;DR: In this article, the authors present a survey of probability theory in the context of sample spaces and decision problems, including the following: 1.1 Experiments and Sample Spaces, and Probability 2.2.3 Random Variables, Random Vectors and Distributions Functions.