Market Power and Capital Flexibility: A New Perspective on the Pricing of Technology Shocks
Event details
| Date | 08.05.2014 |
| Hour | 10:30 › 12:00 |
| Speaker | Lorenzo GALAPPI (UBC) |
| Location | |
| Category | Conferences - Seminars |
We study asset pricing implications of investment-specific technology (IST) shocks in a two-sector general equilibrium model. We show that firms' market power and capital flexibility are key determinants in the pricing of these shocks. In equilibrium the IST price of risk is negative under fixed capital utilization but positive under flexible utilization and IST betas are negative under low market power but positive under high market power. High market power and flexible capital utilization can generate simultaneously positive prices of risk and positive risk premia for IST shocks. Preferences towards early resolution of uncertainty can amplify these effects.
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