Fundamentals, Misvaluation, and Investment. The Real Story
Is real investment fully determined by fundamentals or is it sometimes affected by stockmarket misvaluation? We introduce three new tests that: measure the reaction of investment to sales shocks for firms that may be overvalued; use Fama-MacBeth regressions to determine whether "overinvestment" affects subsequent returns; and analyze the time path of the marginal product of capital in reaction to fundamental and misvaluation shocks. Besides these qualitative tests, we introduce a measure of misvaluation into standard investment equations to estimate the quantitative effect of misvaluation on investment. Overall, the evidence suggests that both fundamental and misvaluation shocks affect investment.
|Date of creation:||Dec 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: ++43 - (0)1 - 599 91 - 0
Fax: ++43 - (0)1 - 599 91 - 555
Web page: http://www.ihs.ac.at
More information through EDIRC
|Order Information:|| Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria|
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.:
- Jeremy C. Stein, 1996.
"Rational Capital Budgeting in an Irrational World,"
NBER Working Papers
5496, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard, 1997.
"Capital-Market Imperfections and Investment,"
NBER Working Papers
5996, National Bureau of Economic Research, Inc.
- Steven N. Kaplan & Luigi Zingales, 2000.
"Investment-Cash Flow Sensitivities Are Not Valid Measures Of Financing Constraints,"
The Quarterly Journal of Economics,
MIT Press, vol. 115(2), pages 707-712, May.
- Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:ihs:ihsesp:200. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Doris Szoncsitz)
If references are entirely missing, you can add them using this form.