Abstract

http://ssrn.com/abstract=2195336
 


 



Aggregate Investment and Investor Sentiment


Salman Arif


Indiana University - Kelley School of Business

Charles M.C. Lee


Stanford University - Graduate School of Business

November 24, 2014

Review of Financial Studies (RFS), Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 181
Kelley School of Business Research Paper No. 2014-44

Abstract:     
Using bottom-up information from corporate financial statements, we examine the relation between aggregate investment, future equity returns, and investor sentiment. Consistent with the business cycle literature, corporate investments peak during periods of positive sentiment, yet these periods are followed by lower equity returns. This pattern exists in most developed countries and survives controls for discount rates, equity flows, valuation multiples, operating accruals, and other investor sentiment measures. Higher aggregate investments also precede greater earnings disappointments, lower short-window earnings announcement returns, and lower macroeconomic growth. We conclude aggregate corporate investment is an alternative, and possibly sharper, measure of market-wide investor sentiment.

Number of Pages in PDF File: 49

Keywords: Investor Sentiment, Corporate Investment, Market Efficiency, Financial Accounting

JEL Classification: G10, E44, G31, G12, G14, G15

Accepted Paper Series





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Date posted: January 2, 2013 ; Last revised: December 1, 2014

Suggested Citation

Arif, Salman and Lee, Charles M.C., Aggregate Investment and Investor Sentiment (November 24, 2014). Review of Financial Studies (RFS), Forthcoming; Rock Center for Corporate Governance at Stanford University Working Paper No. 181; Kelley School of Business Research Paper No. 2014-44. Available at SSRN: http://ssrn.com/abstract=2195336 or http://dx.doi.org/10.2139/ssrn.2195336

Contact Information

Salman Arif (Contact Author)
Indiana University - Kelley School of Business ( email )
1309 East Tenth Street
Bloomington, IN 47405-1701
United States
Charles M.C. Lee
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

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