The Real Impact of Stock Market Mispricing - Evidence from Australia

33 Pages Posted: 13 Oct 2005

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Lewis Tam

Faculty of Business Administration, University of Macau

Tek Jun Tan

University of Melbourne - Department of Finance

George Wong

The Hong Kong Polytechnic University

Date Written: March 2006

Abstract

Using a large panel of Australian firms, we investigate if mispricing in the stock market has an impact on firm-level investment. A significantly positive relation is documented between investment and the proxies for mispricing, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Furthermore, we find that equity-dependent firms display a more pronounced sensitivity of investment to stock misvaluation than do nonequity-dependent firms. Taken together, our findings evidence that mispricing in Australian capital markets may have significant influence on the real economy, and the influence works though an equity-financing channel.

Keywords: Market Inefficiency, Equity Dependence, Investment, Australian Firms.

JEL Classification: G14, G31

Suggested Citation

Chang, Xin and Tam, Lewis and Tan, Tek Jun and Wong, George, The Real Impact of Stock Market Mispricing - Evidence from Australia (March 2006). Available at SSRN: https://ssrn.com/abstract=819585 or http://dx.doi.org/10.2139/ssrn.819585

Xin Chang (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Lewis Tam

Faculty of Business Administration, University of Macau ( email )

Room E22-4055, University of Macau
Avenida da Universidade
Taipa
Macau

Tek Jun Tan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

George Wong

The Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom, Kowloon, 0
Hong Kong
852 3400 3459 (Phone)
852 2330 9845 (Fax)

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