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The Effect of Uncertainty on Investment: Some Stylized Facts


John V. Leahy


New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Toni M. Whited


University of Rochester - Simon Graduate School of Business

JOURNAL OF MONEY, CREDIT, AND BANKING, Vol 28 No 1, February 1995

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. Our results from a panel of U.S. manufacturing firms indicate a negative effect of uncertainty on investment consistent with theories of irreversible investment. We find no evidence for a positive effect via the channel of the convexity of the marginal product of capital, and we find no evidence for the presence of a CAPM-based effect of risk.

JEL Classification: E22

Accepted Paper Series


Date posted: July 25, 1998  

Suggested Citation

Leahy, John V. and Whited, Toni M., The Effect of Uncertainty on Investment: Some Stylized Facts. JOURNAL OF MONEY, CREDIT, AND BANKING, Vol 28 No 1, February 1995. Available at SSRN: http://ssrn.com/abstract=6898

Contact Information

John V. Leahy (Contact Author)
New York University (NYU) - Department of Economics ( email )
269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-992-9770 (Phone)
212-995-4186 (Fax)
HOME PAGE: http://www.nyu.edu/fas/Faculty/LeahyJohn.html
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Toni M. Whited
University of Rochester - Simon Graduate School of Business ( email )
Rochester, NY 14627
United States
Feedback to SSRN (Beta)


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