Public trust, the law, and financial investment☆

Financial Simulation and Investment Expectations

Financial Simulation and Investment Expectations

Executive summary Future investment returns are uncertain; no reliable means to foresee them exists. However, institutions and individuals making financial decisions need an approach to model the range of possible future returns. Any approach requires two fundamental ingredients: • First, long-term historical returns must be examined to determine the attributes and interrelationships that chara...

Investment, Irreversibility, and Financial Imperfections¤

Research ...nds that ...rms’ investment decisions are distorted by irreversibility and ...nance constraints. Whereas the existing literature examines the e¤ects of these features separately, this paper studies their interaction. The impact of these constraints on a ...rm’s incentive to invest is characterised using option pricing techniques. Financial constraints reduce the initial capacity, ra...

Financial Innovation, Collateral, and Investment

We show that financial innovations that change the collateral capacity of assets in the economy can affect investment even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage an asset by selling non-contingent promises can generate over-investment compared to the Arrow-Debreu level. Second, we show that the introduction of naked C...

Trust and financial trades : lessons from an investment game wher reciprocators can hide behind probabilities

This paper shows that if a very small, exogenously given probability of terminating the exchange is introduced in an elementary investment game, more reciprocators will choose the defection strategy. Everything happens as if they "hide behind probabilities" in order to break the trust relationship. Investors do not alter their behavior in a significant way, at least not for a very small externa...