Investment shocks and asset prices

Dimitris Papanikolaou*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

62 Scopus citations

Abstract

I explore the implications for asset prices and macroeconomic dynamics of shocks that improve real investment opportunities and thus affect the representative household's marginal utility. These investment shocks generate differences in risk premia due to their heterogeneous impact on firms: they benefit firms producing investment relative to firms producing consumption goods and increase the value of growth opportunities relative to the value of existing assets. Using data on asset returns, I find that a positive investment shock leads to high marginal utility states. A general equilibrium model with investment shocks matches key features of macroeconomic quantities and asset prices.

Original languageEnglish (US)
Pages (from-to)639-685
Number of pages47
JournalJournal of Political Economy
Volume119
Issue number4
DOIs
StatePublished - Aug 2011

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Investment shocks and asset prices'. Together they form a unique fingerprint.

Cite this