As part of the series of the „Finance Research Seminar“, VGSF welcomes Laurent Calvet from EDHEC Business School to present his research paper.
A Supply and Demand Approach to Capital Markets
We develop an empirically tractable supply and demand model of financial markets, which explains the cost and quantity of capital used by individual firms. Investor preferences, biases, and risk assessments drive capital supply, while a firm’s profitability and other characteristics drive demand. Firm sizes and capital costs are endogenously determined in general equilibrium. Using theoretically-motivated instruments, we estimate the supply and demand schedules of over 1,200 U.S. firms. Our system produces accurate forecasts of firm sizes and capital costs. We use the estimated system to quantify the equilibrium sensitivities of size and capital cost to firm and investor characteristics.
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