Investor Sentiment and Corporate Finance: Micro and Macro

12 Pages Posted: 7 Dec 2005

See all articles by Owen A. Lamont

Owen A. Lamont

Harvard University - Department of Economics

Jeremy C. Stein

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

We document that net equity issuance is considerably more sensitive to aggregate stock returns and Q's than to firm-level stock returns and Q's. Very similar patterns also emerge when we look at merger activity. In light of earlier work (Campbell 1991, Vuolteenaho 2002) which finds that aggregate stock returns are less informative about future cashflows than are firm-level stock returns - and thus, potentially more strongly influenced by investor sentiment - these results suggest that both equity issuance and mergers are to a significant extent driven by market-timing considerations, as opposed to by purely fundamental factors.

Keywords: Investor sentiment, equity issues, mergers

JEL Classification: G14, G32, G34

Suggested Citation

Lamont, Owen A. and Stein, Jeremy C., Investor Sentiment and Corporate Finance: Micro and Macro (December 2005). National Bureau of Economic Research (NBER). Available at SSRN: https://ssrn.com/abstract=864644 or http://dx.doi.org/10.2139/ssrn.864644

Owen A. Lamont

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Jeremy C. Stein (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-6455 (Phone)
617-496-7352 (Fax)

HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html

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