Naval Postgraduate School
Graduate School of Business and Public Policy
1 University Circle
Monterey, CA 93943
Institutional Affiliation: Naval Postgraduate School
NBER Working Papers and Publications
|August 2013||Investment, Tobin's q, and Interest Rates|
with Xioaji Lin, Neng Wang, Jinqiang Yang: w19327
We study the impact of stochastic interest rates and capital illiquidity on investment and firm value by incorporating a widely used arbitrage-free term structure model of interest rates into a standard q theoretic framework. Our generalized q model informs us to use corporate credit-risk information to predict investments when empirical measurement issues of Tobin’s average q are significant (e.g., equity is much more likely to be mis-priced than debt), as in Philippon (2009). We find, consistent with our theory, that credit spreads and bond q have significant predictive powers on micro-level and aggregate investments corroborating the recent empirical work of Gilchrist and Zakrajšek (2012). We also show that the quantitative effects of the stochastic interest rates and capital illiquidit...
Published: Xiaoji Lin & Chong Wang & Neng Wang & Jinqiang Yang, 2018. "Investment, Tobin’s q, and interest rates," Journal of Financial Economics, vol 130(3), pages 620-640. citation courtesy of
|Optimal Consumption and Savings with Stochastic Income and Recursive Utility|
with Neng Wang, Jinqiang Yang: w19319
We develop a tractable incomplete-markets model with an earnings process Y subject to permanent shocks and borrowing constraints. Financial frictions cause the marginal (certainty equivalent) value of wealth W to be greater than unity and decrease with liquidity w = W/Y . Additionally, financial frictions cause consumption to decrease with this endogenously determined marginal value of liquidity. Risk aversion and the elasticity of inter-temporal substitution play very different roles on consumption and the dispersion of w. Permanent earnings shocks, especially large discrete stochastic jumps, make consumption smoothing quantitatively difficult to achieve. Borrowing constraints and permanent discrete jump shocks can generate empirically plausible values for marginal propensities to consume...
Published: Journal of Economic Theory Volume 165, September 2016, Pages 292–331
|March 2011||A Unified Model of Entrepreneurship Dynamics|
with Neng Wang, Jinqiang Yang: w16843
We develop an incomplete-markets q-theoretic model to study entrepreneurship dynamics. Precautionary motive, borrowing constraints, and capital illiquidity lead to underinvestment, conservative debt use, under-consumption, and less risky portfolio allocation. The endogenous liquid wealth-illiquid capital ratio w measures time-varying financial constraint. The option to accumulate wealth before entry is critical for entrepreneurship. Flexible exit option is important for risk management purposes. Investment increases and the private marginal value of liquidity decreases as w decreases and exit becomes more likely, contrary to predictions of standard financial constraint models. We show that the idiosyncratic risk premium is quantitatively significant, especially for low w.
Published: as "A unified model of entrepreneurship dynamics" in Journal of Financial Economics Volume 106, Issue 1, October 2012, Pages 1–23 citation courtesy of