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Do Managers Listen to the Market? A Review of the Relationship Between Investment and Stock Price Informativeness

Do Managers Listen to the Market? A Review of the Relationship Between Investment and Stock Price Informativeness
Author: Paulo Pereira da Silva
Publisher:
Total Pages: 53
Release: 2018
Genre:
ISBN:

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Using a sample of stocks from developed and emerging markets, we analyze the sensitivity of investment to stock price. Consistent with prior research, we find a positive association between investment and stock prices (measured by Tobin's Q), although more pronounced in developed markets than in emerging markets. Remarkably, that association increases with the informativeness of stock prices. However, not all measures of informativeness relate positively with investment-stock price sensitivity. While measures related with the amount of private information conveyed by prices (e.g., price non-synchronicity) heighten the investment-stock price sensitivity, others, such as the variance ratio or delay in the assimilation of common-wide information, hardly affect that sensitivity. To gauge the presence of a causal relationship between price informativeness and investment-stock price sensitivity, we explore a quasi-random event that enhances the information environment of a stock: reconstitutions of MSCI ACWI. By means of an instrumental variables approach, we show that positive (exogenous) shocks on the price informativeness of stocks elevate the investment-stock price sensitivity. Overall, these results support theories of managerial learning, i.e., managers extract information from stock price when making investment decisions, in particular when prices convey more private information not known to them.


Price Informativeness and Investment Sensitivity to Stock Price

Price Informativeness and Investment Sensitivity to Stock Price
Author: Qi Chen
Publisher:
Total Pages: 46
Release: 2011
Genre:
ISBN:

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Stock prices and real investments are highly correlated. Previous literature has offered two main explanations for this high correlation. The first explanation relies on price being informative about investment opportunities, the second one is based on financing constraints. In this paper we empirically examine the effect of price informativeness on the sensitivity of investment to stock price. Using price non-synchronicity and PIN as measures of price informativeness, we find that the degree of informativeness is positively correlated with the sensitivity of investment to stock price. Since, according to previous literature, these measures reflect private information, the result suggests that prices perform an active role, i.e., that managers learn from stock price when making investment decisions. This result is robust to the inclusion of various control variables (such as controls for managerial information) and to changes in specification.


Reading Minds and Markets

Reading Minds and Markets
Author: Jack Ablin with
Publisher: FT Press
Total Pages: 304
Release: 2009-06-19
Genre: Business & Economics
ISBN: 0137032404

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“Read Jack Ablin’s ‘five factor’ approach to investing and you not only will sleep better at night, you’ll be a smarter, wiser human being. Ablin takes you on his twenty-year journey toward a unified, rational approach to investing that can help you weather even the most turbulent financial storms. This book may be one of the best investments you will ever make.” --John Callaway, Senior Correspondent, WTTW, Public Television “This book is based on verifiable data trends and years of experience with a broad array of economic and market numbers. Regret over investment losses need not lead investors to disengage their brains or to be robbed again by schemes hawked as ‘new and improved.’ Reading Minds and Markets will help jump-start an honest investment dialogue that has been sidetracked by excesses of greed and fear.” --Bill Barnhart, Former Financial Editor and Columnist for the Chicago Tribune “The author has taken the complex world of investing and provided an extremely practical approach to success where others have failed miserably. His grasp of the financial markets makes him eminently qualified to develop an extremely sound and practical approach in order to protect and enhance wealth for investors.” --Edward (“Ned”) Riley, Jr., Former Chief Investment Officer for State Street Global Advisors and Chief Investment Officer, Riley Asset Management “With nearly three decades of experience, Jack Ablin’s superb intellectual thinking is reflected in Reading Minds and Markets. This is great reading for the motivated investor.” --Professor Israel Shaked, Finance and Economics Department, Boston University, School of Management You can do more to protect yourself from market risks and down markets. The secret: Understand the big picture and know when to shift money toward more promising industry groups, sectors, or asset classes. This strategy is called “global macro investing”--and, as Chief Investment Officer for Harris Private Bank, Jack Ablin has used it to deliver results for many of the world’s wealthiest families and individuals. In Reading Minds and Markets, Ablin distills his techniques into a remarkably simple, commonsense five-step plan that any investor can use. You’ll discover how to anticipate some of the more significant shifts in global markets and move investments toward areas that are more likely to grow. Equally important, you’ll learn how to overcome bad habits that inevitably lead to failure--habits all too often reinforced by the financial media. In today’s unforgiving markets, you need to make smarter high-level decisions and fewer mistakes: This book will help you do both. Why you must take a top-down view of the market--and how to do it Avoid getting caught off-guard in choppy, highly volatile markets Respond to the market’s powerful signals about relative risk Master strategies for improving return without increasing risk Discover the five factors that consistently tell you where to invest Cut through the clutter of irrelevant data: find what matters and use it Stop being your own worst enemy Overcome the #1 obstacle to structuring your best portfolio: human nature www.readingmindsandmarkets.com


Stock Price Informativeness, Cross-listings and Investment Decisions

Stock Price Informativeness, Cross-listings and Investment Decisions
Author: Thomas Gehrig
Publisher:
Total Pages: 36
Release: 2006
Genre: Investments
ISBN: 9782854188400

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We show that a cross-listing allows a firm to make better investment decisions because it enhances stock price informativeness. This theory of cross-listings yields a rich set of new predictions. In particular, it implies that the sensitivity of investment to stock prices should be larger for cross-listed firms. Moreover, the increase in value generated by a cross-listing (the 'cross-listing premium') should be positively related to the size of growth opportunities and negatively related to the quality of managerial information. The sensitivity of the cross-listing premium to the size of growth opportunities increases when holdings and trading become more evenly distributed between foreign and domestic markets. Last, we show that concentration of trading in the home market ('flow-back') can indeed increase the cross-listing premium for some firms.


Yes, You Can Time the Market!

Yes, You Can Time the Market!
Author: Ben Stein
Publisher: Wiley
Total Pages: 0
Release: 2004-09-29
Genre: Business & Economics
ISBN: 9780471679264

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Economist, actor, author, and former quiz show host Ben Stein teamed up with investment psychologist Phil DeMuth to examine a century of stock market data and discovered a profound and original investment truth: Yes, you can time the market! In their instant investment classic Yes, You Can Time the Market!, Stein and DeMuth show investors simple, readily available measurements that tell them when it's time to invest in stocks, bonds, real estate, or cash. Written for the investor who wants to preserve capital and build wealth steadily, this book offers prudent, bedrock advice for anyone who can no longer afford to play games with their money.


Timing the Market

Timing the Market
Author: Deborah Weir
Publisher: John Wiley & Sons
Total Pages: 431
Release: 2006-04-20
Genre: Business & Economics
ISBN: 0471767646

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The first definitive guide to understanding and profiting from the relationship between the stock market and interest rates It's well established that interest rates significantly impact the stock market. This is the first book that definitively explores the interest rate/stock market relationship and describes a specific system for profiting from the relationship. Timing the Market provides an historically proven system, rooted in fundamental economics, that allows investors and traders to forecast the stock market using data from the interest rate markets-together with supporting market sentiment and cultural indicators-to pinpoint and profit from major turns in the stock market. Deborah Weir (Greenwich, CT) is President of Wealth Strategies, a firm that does marketing for traditional money managers and hedge funds. She is a Chartered Financial Analyst and is the first woman president of the Stamford CFA Society.


Summary: Wise Investing Made Simple

Summary: Wise Investing Made Simple
Author: BusinessNews Publishing,
Publisher: Primento
Total Pages: 31
Release: 2014-09-29
Genre: Business & Economics
ISBN: 2511017067

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The must-read summary of Larry Swedroe's book: "Wise Investing Made Simple: Larry Swedroe's Tales to Enrich Your Future". This complete summary of the ideas from Larry Swedroe's book "Wise Investing Made Simple" shows how investing is chock full of myths and incorrect perceptions, wrapped up in an awful lot of hype. In his book, the author advises the reader to ignore all of that and claims that if you genuinely want to make money, you should become a passive investor. He advises investors to put their investment capital into index or mutual funds which reflect the value of the entire stock market. This summary demonstrates the true key to investing success. Added-value of this summary: • Save time • Understand key concepts • Expand your knowledge To learn more, read "Wise Investing Made Simple" and find out how you can use this simple strategy to successfully invest on Wall Street.


Blind Faith

Blind Faith
Author: Edward Winslow
Publisher: Berrett-Koehler Publishers
Total Pages: 265
Release: 2003-05-10
Genre: Business & Economics
ISBN: 1576759083

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Over 40 percent of households own some form of common stock. Winslow presents why Americans have misplaced trust in the stock market and presents smarter, safer ways to invest.


Do Managers Listen to the Market?

Do Managers Listen to the Market?
Author: James B. Kau
Publisher:
Total Pages: 42
Release: 2018
Genre:
ISBN:

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There are competing theories as to whether managers learn from stock prices. Dye and Sridhar (2002), for example, argue that capital markets can be better informed than the firm itself, while Roll (1986) argues managers may ignore market signals due to hubris. In this paper, we examine whether managers listen to the market in making major corporate investments, and whether agency costs and corporate governance mechanisms help explain managers' propensity to listen. We find that, on average, managers listen to the market: they are more likely to cancel investments when the market reacts unfavorably to the related announcement. Further, we find mixed evidence consistent with the notion that managers' propensity to listen is related to agency costs. We find that firms tend to listen to the market more when more of their shares are held by large blockholders, and when their CEOs have higher pay-performance sensitivities.