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Stock (geology)
About: Stock (geology) is a research topic. Over the lifetime, 31009 publications have been published within this topic receiving 783542 citations.
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TL;DR: In this article, a catering theory describing how stock market mispricing might influence individual firms’ investment decisions was proposed, and a positive relation between abnormal investment and discretionary accruals was found, which indicated that firms with high abnormal investment subsequently have low stock returns.
Abstract: We test a catering theory describing how stock market mispricing might influence individual firms’ investment decisions. We use discretionary accruals as our proxy for mispricing. We find a positive relation between abnormal investment and discretionary accruals; that abnormal investment is more sensitive to discretionary accruals for firms with higher RD that firms with high abnormal investment subsequently have low stock returns; and that the larger the relative price premium, the stronger the abnormal return predictability. We show that patterns in abnormal returns are stronger for firms with higher R&D intensity or share turnover. (JEL G14, G31) In this paper, we study whether mispricing in the stock market has consequences for firm investment policy. We test a “catering” channel, through which deviations from fundamentals may affect investment decisions directly. If the market misprices firms according to their level of investment, managers may try to boost short-run share prices by catering to current sentiment. Firms with ample cash or debt capacity may have an incentive to waste resources in negative NPV projects when their stock price is overpriced and to forgo positive investment opportunities when their stock price is undervalued. Managers with shorter shareholder horizons, and those whose assets are more difficult to value, should cater more.
685 citations
TL;DR: This article examined the effects of a common stock repurchase on the values of the repurchasing firm's common stock, debt and preferred stock, and attempted to identify the dominant factors underlying the observed value changes.
671 citations
TL;DR: In this paper, the authors study equilibrium firm-level stock returns in two economies: one in which investors are loss averse over the f luctuations of their stock portfolio, and another in which they are loss-averse over individual stocks that they own, and find that the typical individual stock return has high mean and excess volatility, and there is a large value premium in the cross section which can, to some extent, be captured by a commonly used multifactor model.
Abstract: We study equilibrium firm-level stock returns in two economies: one in which investors are loss averse over the f luctuations of their stock portfolio, and another in which they are loss averse over the f luctuations of individual stocks that they own Both approaches can shed light on empirical phenomena, but we find the second approach to be more successful: In that economy, the typical individual stock return has a high mean and excess volatility, and there is a large value premium in the cross section which can, to some extent, be captured by a commonly used multifactor model OVER THE PAST TWO DECADES, researchers analyzing the structure of individual stock returns have uncovered a wide range of phenomena, both in the time series and the cross section In the time series, the returns of a typical individual stock have a high mean, are excessively volatile, and are slightly predictable using lagged variables In the cross section, there is a substantial “value” premium, in that stocks with low ratios of price to fundamentals have higher average returns, and this premium can to some extent be captured by certain empirically motivated multifactor models 1 These findings have attracted a good deal of attention from finance theorists It has proved something of a challenge, though, to explain both the time series and crosssectional effects in the context of an equilibrium model where investors maximize a clearly specified utility function In this paper, we argue that it may be possible to improve our understanding of firm-level stock returns by refining the way we model investor preferences For guidance as to what kind of refinements might be important, we turn to the experimental evidence that has been accumulated on how people choose among risky gambles Many of the studies in this literature suggest that loss aversion and narrow framing play an important
666 citations
TL;DR: The authors studied the costs of short selling equities from 1926 to 1933, using the publicly observable market for borrowing stock and found that stocks that are expensive to short or which enter the borrowing market have high valuations and low subsequent returns, consistent with the overpricing hypothesis.
665 citations