Research in Progress

Globalization, Entrepreneurship, and Investment (with George-Marios Angeletos)

This paper examines how cross-country differences in within-country risk-sharing affect the cross-country differences in capital, productivity, wealth, and current account deficits. When a less financially developed economy opens up to the rest of the world, capital outflows lead to a short-run reduction in investment. At the same time, however, the safe rate, which had been kept low due to precautionary saving pressures, increases. The resulting increase in the return to saving makes agents wealthier, and therefore more willing to undertake risky investment in the domestic economy. Hence investment may end up increasing at the long-run steady state, compared to its original level when the economy was closed.

Idiosyncratic Return Volatility and Public Firm Investment

The data indicates that publicly traded firms worldwide do not have a perfectly diversified shareholder base. This paper examines how uninsurable risk affects investment behavior for publicly traded firms in the United States. Using weekly data from CRSP for every year and every firm, different measures of volatility of stock returns are constructed for all firms in COMPUSTAT. Subsequently, public firm investment is regressed on past volatility of returns, and a number of controls, including Tobin's Q, cashflows, capital, firm-fixed effects, and time fixed effects. The volatility coefficient is always negative and statistically significant. This result demonstrates that investment is sensitive to idiosyncratic risk even for publicly traded firms.

Idiosyncratic Investment Risk and Optimal Capital Taxation 

Business Cycle Implications of Private and Public Firm Investment Behavior

Slides