Investment Irreversibility, Real Activity and Asset Return Dynamics

Posted: 19 Jun 2013

See all articles by Ilan Cooper

Ilan Cooper

BI Norwegian Business School

Bruno Gerard

BI Norwegian Business School - Department of Finance

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Guojun Wu

University of Houston; China Academy of Financial Research (CAFR)

Date Written: May 10, 2013

Abstract

We conduct an empirical investigation of an investment-based asset pricing model. We introduce a novel theoretically derived economically fundamental variable, namely the rate of capital utilization and test its relationships with return volatility, systematic risk and expected returns. Our evidence, based on 459 manufacturing industries from the NBER productivity database, on the roles of assets in place and growth options in stock return dynamics is broadly consistent with the predictions of the new strand of models. We also propose a novel measure for the degree of investment irreversibility, namely the volatility of the capacity utilization rate.

Keywords: Real Investment, Capital Utilization, Expected Returns

JEL Classification: G12

Suggested Citation

Cooper, Ilan and Gerard, Bruno and Izhakian, Yehuda (Yud) and Wu, Guojun, Investment Irreversibility, Real Activity and Asset Return Dynamics (May 10, 2013). Available at SSRN: https://ssrn.com/abstract=2280493

Ilan Cooper (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Bruno Gerard

BI Norwegian Business School - Department of Finance ( email )

Nydalsveien 37
Oslo, N-0484
Norway
+4746410506 (Phone)

Yehuda (Yud) Izhakian

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://people.stern.nyu.edu/yizhakia/

Guojun Wu

University of Houston ( email )

220F Melcher Hall
Houston, TX 77204-6021
United States
713-743-4813 (Phone)
713-743-4789 (Fax)

HOME PAGE: http://www.bauer.uh.edu/wu

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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