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Sector-Specific Volatility Patterns in Investment

Author

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  • Matthias Kredler

    (New York University)

Abstract

This paper addresses the question if there are differences between time patterns in the volatility of investment across different industrial sectors. A competitive partial-equilibrium model with quadratic adjustment costs in investment and a GARCH demand shock is developed to predict aggregate investment in a sector. It is shown that under the assumptions made in the model, the GARCH property is inherited by the aggregate investment process in the rational-expectations equilibrium. The equation for investment from the model is estimated on quarterly time series from six industrial sectors in the UK. As conjectured, GARCH effects play an important role in some sectors but are not significant in others. Astonishingly, the volatility patterns are in general very different across sectors. This suggests that sector-specific factors are more important in determining investment volatility than the macroeconomic environment.

Suggested Citation

  • Matthias Kredler, 2005. "Sector-Specific Volatility Patterns in Investment," Macroeconomics 0501016, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0501016
    Note: Type of Document - pdf; pages: 15
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0501/0501016.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    investment; volatility; variance; GARCH; ARCH; sector;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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