Arbeitspapier
Uncertainty, risk, and capital growth
We find that high macroeconomic uncertainty is associated with greater accumulation of physical capital, despite a reduction in investment and valuations. To reconcile this puzzling evidence, we show that uncertainty predicts lower depreciation and utilization of existing capital, which dominates the investment slowdown. Motivated by these dynamics, we develop a quantitative production-based model in which firms implement precautionary savings through reducing utilization rather than raising investment. Through this novel intensive-margin mechanism, uncertainty shocks command a quarter of the equity premium in general equilibrium, while flexibility in utilization adjustments helps explain uncertainty risk exposures in the cross-section of industry returns.
- Language
-
Englisch
- Bibliographic citation
-
Series: SAFE Working Paper ; No. 388
- Classification
-
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Business Fluctuations; Cycles
Criteria for Decision-Making under Risk and Uncertainty
General Equilibrium and Disequilibrium: General
- Subject
-
Uncertainty
Production
Asset Pricing
Utilization
Depreciation
Equity Premium
- Event
-
Geistige Schöpfung
- (who)
-
Segal, Gill
Shaliastovich, Ivan
- Event
-
Veröffentlichung
- (who)
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Leibniz Institute for Financial Research SAFE
- (where)
-
Frankfurt a. M.
- (when)
-
2023
- DOI
-
doi:10.2139/ssrn.4465821
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Segal, Gill
- Shaliastovich, Ivan
- Leibniz Institute for Financial Research SAFE
Time of origin
- 2023
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