Price Informativeness and Investment Sensitivity to Stock Price
Year: 2006
Type: article
Abstract: The article shows that two measures of the amount of private information in stock price—price nonsynchronicity and probability of informed trading (PIN)—have a strong positive effect on the sensitivity of corporate investment to stock price. Moreover, the effect is robust to the inclusion of controls for managerial information and for other information-related variables. The results suggest that firm managers learn from the private information in stock price about their own firms’ fundamentals and incorporate this information in the corporate investment decisions. We relate our findings to an alternative explanation for the investment-to-price sensitivity, namely that it is generated by capital constraints, and show that both the learning channel and the alternative channel contribute to this sensitivity. (JEL G14, G31)
Source: Review of Financial Studies
DOI: 10.1093/rfs/hhl024
Authors: Qi Chen, Itay Goldstein, Wei Jiang
Institutions: Duke University, University of Pennsylvania, Columbia University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122551571