Heterogeneity in the Dynamic Effects of Uncertainty on Investment

Sungje Byun & Soojin Jo
How does aggregate profit uncertainty influence investment activity at the firm level? We propose a parsimonious adaptation of a factor-autoregressive conditional heteroscedasticity model to exploit information in a subindustry sales panel for an efficient and tractable estimation of aggregate volatility. The resulting uncertainty measure is then included in an investment forecasting model interacted with firm-specific coefficients. We find that higher profit uncertainty induces firms to lower capital expenditure on average, yet to a considerably different...

Registration Year

  • 2021
    1

Resource Types

  • Text
    1

Affiliations

  • University of California, San Diego
    1
  • Bank of Canada
    1