Price informativeness and investment sensitivity to stock price
The article shows that two measures of the amount of private information in stock price-price nonsynchronicity and probability of informed trading (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 information in the corporate investment decisions. We relate our findings to an alternative explanation for the investment-to-price sensitivity, namely that it is generated by capital constraints, and show that both the learning channel and the alternative channel contribute to this sensitivity. © The Author 2006.
Duke Scholars
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- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory
Citation
Published In
DOI
EISSN
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory