Source: www.columbia.edu
Topic: Stock Investment
Sort Desciption: finding of a positive relation between investment sensitivity to stock price and ...... variable in explaining the sensitivity of investment to stock price. ...
Content Inside: Price Informativeness and Investment Sensitivity to Stock Price 1 Qi Chen 2 Itay Goldstein 3 Wei Jiang 4 First Draft: September 2003 Current Draft: January 2006 1 We thank Brad Barber, Alon Brav, David Easley, Simon Gervais, Larry Glosten, John Graham, Campbell Harvey, Florian Heider, Charlie Himmelberg, Laurie Hodrick, Burton Hollifield, Gur Huberman, Soeren Hvidkjaer, Roni Michaely, Robert Neal, Jeremy Stein, Clara Vega, S. Viswanathan, Jeff Wurgler, Yun Zhang, an anonymous referee, and Maureen O’Hara (the editor) for helpful comments and discussions. We also benefit from comments made by participants at Duke University, the University of North Carolina at Chapel Hill, the University of Virginia, Columbia-NYU joint seminar, the Univeristy of California at Davis, London Business School, and by participants at the following conferences: The 14th Annual Conference on Financial Economics and Accounting at Indiana University; The 6th Texas Finance Festival, and the 1st conference of the Financial Intermediation Research Society. 2 The Fuqua School of Business, Duke University, qc2@duke.edu. 3 The Wharton School, University of Pennsylvania, itayg@wharton.upenn.edu. 4 The Graduate School of Business, Columbia University, wj2006@columbia.edu. Price Informativeness and Investment Sensitivity to Stock Price Abstract The paper shows that two measures of the amount of private information in stock price — price non-synchronicity and PIN — have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover, the effect is robust to the inclusion of controls for managerial information, and for other information-related variables. The results suggest that firm managers learn from the private information in stock price about their own firms’ fundamentals and incorporate this infor- mation in the corporate investment decisions. We relate our findings to an alternative explanation for the investment-to-price sensitivity, namely th ...
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