Do Stock Price Bubbles Influence Corporate Investment?

Simon Gilchrist, Charles P. Himmelberg and Gur Huberman

No 10537, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Building on recent developments in behavioral asset pricing, we develop a model in which dispersion of investor beliefs under short-selling constraints drives a firm's stock price above its fundamental value. Managers optimally respond to the stock market bubble by issuing new equity. The bubble reduces the user-cost of capital and increase real investment. Using the variance of analysts' earnings forecasts as a proxy for the dispersion of investor beliefs, we find strong empirical support for the model's key prediction that increases in dispersion cause increases in new equity issuance, Tobin's Q, and real investment.

JEL-codes: E22 G31 (search for similar items in EconPapers)
Date: 2004-06
New Economics Papers: this item is included in nep-acc and nep-cfn
Note: CF ME AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Published as Gilchrist, Simon, Charles P. Himmelberg and Gur Huberman. "Do Stock Price Bubbles Influence Corporate Investment?," Journal of Monetary Economics, 2005, v52(4,May), 805-827.

Downloads: (external link)
http://www.nber.org/papers/w10537.pdf (application/pdf)

Related works:
Journal Article: Do stock price bubbles influence corporate investment? (2005)
Working Paper: Do stock price bubbles influence corporate investment? (2004)
Working Paper: Do Stock Price Bubbles Influence Corporate Investment? (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10537

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10537

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().