Abstract. Long term optimal investment problems are studied in a factor model with matrix valued state variables. Explicit parameter restrictions are obtained under which, for an isoelastic investor, the finite horizon value function and optimal strategy converge to their long-run counterparts as the investment horizon approaches infinity. This convergence also yields portfolio turnpikes for ge...

This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm‟s assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, w...

This paper explores the use of an intuitive decision support model for evaluating and selecting corporate bonds. The model is based on the Analytic Hierarchy Process (AHP), which enables an individual investor and a portfolio manager to identify the relative impacts of multiple criteria derived from the assessment of a particular investment environment. It also allows the pairwise comparisons o...

This paper studies the interaction between monetary policy and asset prices using a simple general equilibrium model in which asset-price bubbles may form due to herd behavior in investment in a new technology whose productivity is uncertain. The economy is populated with one infinitely lived representative household and overlapping generations of finitely lived entrepreneurs. Entrepreneurs rec...

This study provides novel evidence on the role of ambiguity aversion in determining the response of mutual fund investors to historical fund performance information. We present a model of ambiguity averse investors who receive multiple performance-based signals of uncertain precision about manager skill. A key implication of the model is that when investors receive multiple signals of uncertain...

This paper explores the effect of exclusionary ”ethical investing” on corporate behavior in a risk averse, equilibrium setting. While arguments exist that ethical investing can inßuence a Þrm’s cost of capital, and so affect investment, no equilibrium model has been presented to do so. We show that exclusionary ethical investing leads to ”polluting” Þrms being held by fewer investors since ”gre...

In many settings, copying, learning from or assigning value to group behavior is rational because such behavior can often act as a proxy for valuable returns. However, such herd behavior can also be pathologically misleading by coaxing individuals into behaviors that are otherwise irrational and it may be one source of the irrational behaviors underlying market bubbles and crashes. Using a two-...

Strategic investment models, though popular in the theoretical literature, have rarely been tested empirically. This paper develops a model of strategic investment in inpatient procedure markets, which are well-suited to empirical tests of this behavior. Potential entrants are easy to identify in such markets, enabling the researcher to accurately estimate the entry threat faced by different in...

Article history: Received 11 May 2012 Received in revised form 17 July 2013 Accepted 8 November 2013 Available online 18 November 2013 Market effects on corporate investment are well documented. Low disagreement implies high investment, but we know little about what high disagreement implies, other than the implied flip side (low investment). This paper adds to this literature in several ways. ...

The &as if ' view of economic rationality defends the pro"t maximization hypothesis by pointing out that only those "rms who act as if they maximize pro"ts can survive in the long run. Recently, the problem of arriving at a logically consistent de"nition of rational behavior in games has shown that one must sometimes study explicitly the evolutionary processes that form the basis of this view. ...