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Investor Sentiment and Corporate Finance: Micro and Macro

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  • Owen A. Lamont
  • Jeremy C. Stein

Abstract

We document that net equity issuance is considerably more sensitive to aggregate stock returns and Q's than to firm-level stock returns and Q's. Very similar patterns also emerge when we look at merger activity. In light of earlier work (Campbell 1991, Vuolteenaho 2002) which finds that aggregate stock returns are less informative about future cashflows than are firm-level stock returns--and thus, potentially more strongly influenced by investor sentiment--these results suggest that both equity issuance and mergers are to a significant extent driven by market-timing considerations, as opposed to by purely fundamental factors.

(This abstract was borrowed from another version of this item.)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282806777212143
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 2 (May)
Pages: 147-151

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:2:p:147-151

Note: DOI: 10.1257/000282806777212143
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References

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  1. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-79, March.
  2. Malcolm Baker & Jeffrey Wurgler, 1999. "The Equity Share in New Issues and Aggregate Stock Returns," Yale School of Management Working Papers ysm124, Yale School of Management, revised 01 Jan 2009.
  3. Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc.
  4. Jeremy C. Stein, 1996. "Rational Capital Budgeting in an Irrational World," NBER Working Papers 5496, National Bureau of Economic Research, Inc.
  5. Tuomo Vuolteenaho, 2002. "What Drives Firm-Level Stock Returns?," Journal of Finance, American Finance Association, vol. 57(1), pages 233-264, 02.
  6. Owen A. Lamont, 2002. "Evaluating Value Weighting: Corporate Events and Market Timing," NBER Working Papers 9049, National Bureau of Economic Research, Inc.
  7. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
  8. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May.
  9. Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, 08.
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Citations

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Cited by:
  1. Shleifer, Andrei & Vishny, Robert W., 2010. "Unstable banking," Journal of Financial Economics, Elsevier, vol. 97(3), pages 306-318, September.
  2. Jiao, T. & Mertens, G.M.H. & Roosenboom, P.G.J., 2007. "Industry Valuation Driven Earnings Management," ERIM Report Series Research in Management ERS-2007-069-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  3. Koch, Rosemarie & Stadtmann, Georg, 2010. "Das Gesetz zur Angemessenheit der Vorstandsverg├╝tung," Discussion Papers 288, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  4. Cooper, Ilan & Priestley, Richard, 2011. "Real investment and risk dynamics," Journal of Financial Economics, Elsevier, vol. 101(1), pages 182-205, July.

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