The Stock Market and Investment Harvard
This PDF has contents related to Stock Trading. In this paper, they try
to address empirically the broader question of how the stock market affects
investment. They identify four theories that explain the correlation between
stock returns and subsequent investment. The first says that the stock market is
a passive predictor of future activity that managers do not rely on to make
investment decisions. The second theory says that, in making investment
decisions, managers rely on the stock market as a source of information, which
may or may not be correct about future fundamentals. The third theory, which is
perhaps the most common view of the stock market's influence, says that the
stock market affects investment through its influence on the cost of funds and
external financing. Finally, the fourth theory says that the stock market exerts
pressure on investment quite aside from its informational and financing role,
because managers have to cater to investors' opinions in order to protect their
livelihood.
Author(s): Randall Morck, University of
Alberta, Andrei Shleifer, Harvard University, Robert W. Vishny, University of
Chicago
59 Pages