The Effect of Uncertainty on Investment: Some Stylized Facts

John Leahy and Toni Whited

Journal of Money, Credit and Banking, 1996, vol. 28, issue 1, 64-83

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. The authors' results from a panel of U.S. manufacturing firms indicate a negative effect of uncertainty on investment consistent with theories of irreversible investment. They find no evidence for a positive effect via the channel of the convexity of the marginal product of capital and find no evidence for the presence of a CAPM-based effect of risk. Copyright 1996 by Ohio State University Press.

Date: 1996
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Working Paper: The Effect of Uncertainty on Investment: Some Stylized Facts (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:28:y:1996:i:1:p:64-83

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