Does Firm-Specific Information in Stock Prices Guide Capital Allocation?

67 Pages Posted: 19 Jan 2001 Last revised: 30 Jan 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Bernard Yin Yeung

National University of Singapore - Business School

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

Abstract

We show that firms in industries in which firm-specific stock price variation is larger use more external financing and allocate capital with greater precision in the sense that their marginal q ratios are closer to one. According to the Efficient Markets Hypothesis, greater firm-specific stock price variation reflects higher intensity firm-specific information capitalization in stock prices. We propose that higher firm-specific price variation may be an indicator of greater functional-form market efficiency in the sense of Tobin (1982).

Suggested Citation

Morck, Randall K. and Yeung, Bernard Yin and Durnev, Artyom, Does Firm-Specific Information in Stock Prices Guide Capital Allocation? (January 2001). NBER Working Paper No. w8093. Available at SSRN: https://ssrn.com/abstract=256917

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

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Artyom Durnev

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