Aggregate Investment and Investor Sentiment

Salman Arif and Charles Lee
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Salman Arif: IN University

Research Papers from Stanford University, Graduate School of Business

Abstract: Using bottom-up information gleaned from corporate financial statements, we examine the relation between aggregate investment, future equity returns, and investor sentiment. Consistent with the business cycle literature, corporate investments peak during periods of positive sentiment (measured multiple ways), yet these periods are followed by lower equity returns (particularly for "growth" stocks). This pattern exists in most developed countries, and survives controls for discount rates, equity flows, valuation multiples, operating accruals, and other investor sentiment measures. Higher aggregate investments also precede greater earnings disappointments, lower short-window earnings announcement returns, and lower macroeconomic growth. We conclude aggregate corporate investment is an alternative, and possibly sharper, measure of market-wide investor sentiment.

Date: 2014-05
New Economics Papers: this item is included in nep-ifn and nep-mfd
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Journal Article: Aggregate Investment and Investor Sentiment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3061

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