Noisy Stock Prices and Corporate Investment

Olivier Dessaint, Thierry Foucault, Laurent Frésard and Adrien Matray
Additional contact information
Olivier Dessaint: University of Toronto - Rotman School of Management
Laurent Frésard: University of Lugano; Swiss Finance Institute; University of Maryland - Robert H. Smith School of Business
Adrien Matray: Princeton University

No 18-73, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Firms significantly reduce their investment in response to non-fundamental drops in the stock price of their product-market peers. We argue that this result arises because of managers' limited ability to filter out the noise in stock prices when using them as signals about their investment opportunities. The resulting losses of capital investment and shareholders' wealth are economically large, and affect even firms that are not facing severe financing constraints or agency problems. Our findings offer a novel perspective on how stock market inefficiencies can affect the real economy, even in the absence of financing or agency frictions.

Pages: 67 pages
Date: 2018-12
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Noisy Stock Prices and Corporate Investment (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1873

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