Fundamentals, Misvaluation, and Investment: The Real Story
Robert S. Chirinko
- Publisher: Vienna: Institute for Advanced Studies (IHS)
fundamentals | USA | E44 | E22 | Wertpapieranalyse | E32 | Börsenkurs | investment | stock market | real effects of financial markets | G3 | investment, stock market, fundamentals, misvaluation, bubbles, real effects of financial markets | Kapitalanlage | misvaluation, bubbles | Schätzung | Schock
Is real investment fully determined by fundamentals or is it sometimes affected by stock market misvaluation? We introduce three new tests that: measure the reaction of investment to sales shocks for firms that may be overvalued; use Fama-MacBeth regressions to determine whether "overinvestment" affects subsequent returns; and analyze the time path of the marginal product of capital in reaction to fundamental and misvaluation shocks. Besides these qualitative tests, we introduce a measure of misvaluation into standard investment equations to estimate the quantitative effect of misvaluation on investment. Overall, the evidence suggests that both fundamental and misvaluation shocks affect investment.