The Effect of Uncertainty on Investment: Some Stylized Facts
JOURNAL OF MONEY, CREDIT, AND BANKING, Vol 28 No 1, February 1995
Posted: 25 Jul 1998
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The Effect of Uncertainty on Investment: Some Stylized Facts
Abstract
The theoretical relationship between investment and uncertainty is ambiguous. This paper briefly surveys the insights that theory has to offer and then runs a series of simple tests aimed at evaluating the empirical significance of various theoretical effects. Our results from a panel of U.S. manufacturing firms indicate a negative effect of uncertainty on investment consistent with theories of irreversible investment. We find no evidence for a positive effect via the channel of the convexity of the marginal product of capital, and we find no evidence for the presence of a CAPM-based effect of risk.
JEL Classification: E22
Suggested Citation: Suggested Citation