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Investor Sentiment and Corporate Finance: Micro and Macro

  • Owen A. Lamont
  • Jeremy C. Stein

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.

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File URL: http://www.nber.org/papers/w11882.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11882.

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Date of creation: Dec 2005
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Publication status: published as Lamont, Owen A. and Jeremy C. Stein. "Investor Sentiment And Corporate Finance: Micro And Macro," American Economic Review, 2005, v95(4,Sep), 147-151.
Handle: RePEc:nbr:nberwo:11882
Note: CF
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  1. Campbell, John, 1991. "A Variance Decomposition for Stock Returns," Scholarly Articles 3207695, Harvard University Department of Economics.
  2. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
  3. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
  4. Kent Daniel & Sheridan Titman, 2003. "Market Reactions to Tangible and Intangible Information," NBER Working Papers 9743, National Bureau of Economic Research, Inc.
  5. Stein, Jeremy C., 1996. "Rational Capital Budgeting in an Irrational World," Scholarly Articles 3708373, Harvard University Department of Economics.
  6. 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.
  7. Owen A. Lamont, 2002. "Evaluating Value Weighting: Corporate Events and Market Timing," NBER Working Papers 9049, National Bureau of Economic Research, Inc.
  8. Tuomo Vuolteenaho, 2002. "What Drives Firm-Level Stock Returns?," Journal of Finance, American Finance Association, vol. 57(1), pages 233-264, 02.
  9. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May.
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