Investment and Value: A Neoclassical Benchmark

Janice Eberly (), Sergio Rebelo () and Nicolas Vincent ()
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Nicolas Vincent: IEA, HEC Montréal, http://www2.hec.ca/iea/

No 08-03, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: Which investment model best fits firm-level data? To answer this question we estimate alternative models using Compustat data. Surprisingly, the two best-performing specifications are based on Hayashi’s (1982) model. This model’s foremost implication, that Q is a sufficient statistic for determining a firm’s investment decision, has been often rejected because cash-flow and lagged-investment effects are present in investment regressions. However, we find that these regression are ineffectual for evaluating model performance. So, forget what investment regressions tell you. Models based on Hayashi (1982) provide a very good description of investment behavior at the firm level.

New Economics Papers: this item is included in nep-bec
Date: 2008-05
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Related works:
Working Paper: Investment and Value: A Neoclassical Benchmark (2008)
Working Paper: Investment and Value: A Neoclassical Benchmark (2008)
Working Paper: Investment and Value: a Neoclassical Benchmark (2009)
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