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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Gur Huberman

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June 2004Do Stock Price Bubbles Influence Corporate Investment?
with Simon Gilchrist, Charles P. Himmelberg: w10537
Building on recent developments in behavioral asset pricing, we develop a model in which dispersion of investor beliefs under short-selling constraints drives a firm's stock price above its fundamental value. Managers optimally respond to the stock market bubble by issuing new equity. The bubble reduces the user-cost of capital and increase real investment. Using the variance of analysts' earnings forecasts as a proxy for the dispersion of investor beliefs, we find strong empirical support for the model's key prediction that increases in dispersion cause increases in new equity issuance, Tobin's Q, and real investment.

Published: Gilchrist, Simon, Charles P. Himmelberg and Gur Huberman. "Do Stock Price Bubbles Influence Corporate Investment?," Journal of Monetary Economics, 2005, v52(4,May), 805-827. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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