Aggregate Investment and its Consequences

49 Pages Posted: 8 Mar 2012

See all articles by Salman Arif

Salman Arif

Indiana University - Kelley School of Business - Department of Accounting

Date Written: March 5, 2012

Abstract

I use financial statement information to examine intertemporal investment decisions by publicly traded firms at the aggregate level. I find that aggregate corporate investment negatively predicts aggregate returns in the US and abroad. Corporations invest more when investor sentiment is higher, the yield curve is flatter, and analysts are more optimistic. Higher aggregate investment forecasts lower aggregate profitability, lower earnings announcement returns, a widening of the ‘value premium’, lower returns on growth stocks and lower macroeconomic growth. My findings are consistent with the long-held conjecture that aggregate investment is inefficient, with consequences for prices and fundamentals at the aggregate level.

Keywords: Aggregate Investment, Behavioral Finance, Financial Accounting

JEL Classification: G14, G12, G1, G31

Suggested Citation

Arif, Salman, Aggregate Investment and its Consequences (March 5, 2012). Available at SSRN: https://ssrn.com/abstract=2016655 or http://dx.doi.org/10.2139/ssrn.2016655

Salman Arif (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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