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Does Firm-specific Information in Stock Prices Guide Capital Allocation?

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Author Info
Artyom Durnev
Randall Morck
Bernard Yeung

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Abstract

We show that firms in industries in which firm-specific stock price variation is larger use more external financing and allocate capital with greater precision in the sense that their marginal q ratios are closer to one. According to the Efficient Markets Hypothesis, greater firm-specific stock price variation reflects higher intensity firm-specific information capitalization in stock prices. We propose that higher firm-specific price variation may be an indicator of greater functional-form market efficiency in the sense of Tobin (1982).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8093.

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Date of creation: Jan 2001
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Handle: RePEc:nbr:nberwo:8093

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G3 - Financial Economics - - Corporate Finance and Governance

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Artyom Durnev & Randall Morck & Bernard Yeung, 2001. "Capital Markets and Capital Allocation: Implications for Economies in Transition," William Davidson Institute Working Papers Series 417, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  2. William H. Greene & Abigail S. Hornstein & Lawrence J. White & Bernard Y. Yeung, 2006. "Multinationals Do It Better: Evidence on the Efficiency of Corporations’ Capital Budgeting," Working Papers 06-04, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  3. Hou, Kewei & Peng, Lin & Xiong, Wei, 2006. "R2 and Price Inefficiency," Working Paper Series 2006-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
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