Price informativeness and investment sensitivity to stock price

Published

Journal Article

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.

Full Text

Duke Authors

Cited Authors

  • Chen, Q; Goldstein, I; Jiang, W

Published Date

  • May 1, 2007

Published In

Volume / Issue

  • 20 / 3

Start / End Page

  • 619 - 650

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhl024

Citation Source

  • Scopus