NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Investor Sentiment and Corporate Finance: Micro and Macro

Owen A. Lamont, Jeremy C. Stein

NBER Working Paper No. 11882
Issued in December 2005
NBER Program(s):   CF

We document that net equity issuance is considerably more sensitive to aggregate stock returns and Q's than to firm-level stock returns and Q's. Very similar patterns also emerge when we look at merger activity. In light of earlier work (Campbell 1991, Vuolteenaho 2002) which finds that aggregate stock returns are less informative about future cashflows than are firm-level stock returns--and thus, potentially more strongly influenced by investor sentiment--these results suggest that both equity issuance and mergers are to a significant extent driven by market-timing considerations, as opposed to by purely fundamental factors.

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Document Object Identifier (DOI): 10.3386/w11882

Published: Lamont, Owen A. and Jeremy C. Stein. "Investor Sentiment And Corporate Finance: Micro And Macro," American Economic Review, 2005, v95(4,Sep), 147-151.

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