Uncertainty, Financial Frictions, and Investment Dynamics
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1,164 citations
Cites background or result from "Uncertainty, Financial Frictions, a..."
...Uncertainty has been argued to increase the risk of default (e.g. Greenwald and Stiglitz (1990), Gilchrist, Sim, and Zakrajsek (2011)) and the equity risk premium (Pastor and Veronesi (2011)), which would result in higher costs of external financing....
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...Gilchrist, Sim, and Zakrajsek (2011) also investigate the possibility that financial frictions are an important mechanism through which overall uncertainty affects capital investment and find evidence consistent with the results in this study....
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...Second, uncertainty can increase the costs of external financing by increasing the risk of default (e.g. Gilchrist, Sim, and Zakrajsek (2011)) or the equity risk premium (Pastor and Veronesi (2011)) which can result in lower investment rates....
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Cites background from "Uncertainty, Financial Frictions, a..."
...Overall, both theory and evidence suggest that uncertainty shocks are aggregate demand shocks....
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...Uncertainty shocks can have important interactions with financial factors (Gilchrist, Sim, and Zakrajsek, 2010; Arellano, Bai, and Kehoe, 2011)....
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434 citations
References
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"Uncertainty, Financial Frictions, a..." refers methods in this paper
...In implementing the first step, we employ a 4-factor model—namely, the Fama and French (1992) 3-factor model, augmented with the momentum risk factor proposed by Carhart (1997). In the second step, we calculate the quarterly firm-specific standard deviation of daily idiosyncratic returns, according to...
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11,225 citations