Cities exist because of the productivity gains arising from clustering production and workers, a process called agglomeration. How important is agglomeration for aggregate growth? This paper constructs a dynamic stochastic general equilibrium model of cities and uses it to estimate the effect of...

We quantify how much nonfundamental movements in stock prices affect firm decisions. We estimate a dynamic investment model in which firms can finance with equity, cash, or debt. Misvaluation affects equity values, and firms optimally issue and repurchase overvalued and undervalued shares. The...

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....

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

We examine the neoclassical investment model using a panel of U.S. manufacturing firms. The standard model with no financing constraints cannot be rejected for firms with high (pre-sample) dividend payouts. However, it is decisively rejected for firms with low (pre-sample) payouts (firms we...

We develop a dynamic model with endogenous choice of leverage, distributions, and real investment in the presence of a graduated corporate income tax, individual taxes on interest and corporate distributions, costs of financial distress, and equity flotation costs. The dynamic trade-off...