tailieunhanh - Federal Reserve Bank of New York Staff Reports

Options can either increase or decrease a security’s potential for price changes, depending upon the type of option and who owns it. A call option allows the issuer of the security to redeem the full amount of the obligation before its maturity date. Investors have sold, or are “short,” the option on a callable bond. In return for allowing the issuer to call a bond prior to maturity, investors receive a higher yield. It is helpful to consider securities with call options in two groups: amortizing and non-amortizing or “bullet” securities. An amortizing. | Federal Reserve Bank of New York Staff Reports Do Stock Price Bubbles Influence Corporate Investment Simon Gilchrist Charles P. Himmelberg Gur Huberman Staff Report no. 177 February 2004 This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors. Do Stock Price Bubbles Influence Corporate Investment Simon Gilchrist Charles P Himmelberg and Gur Huberman Federal Reserve Bank of New York Staff Reports no. 177 February 2004 JEL classification E22 G31 G32 D92 Abstract Building on recent developments in behavioral asset pricing we develop a model in which an increase in the dispersion of investor beliefs under short-selling constraints predicts a bubble or a rise in a stock s price above its fundamental value. Our model predicts that managers respond to bubbles by issuing new equity and increasing capital expenditures. We test these predictions as well as others using the variance of analysts earnings forecasts a proxy for the dispersion of investor beliefs to identify the bubble component in Tobin s Q. When comparing firms traded on the New York Stock Exchange with those traded on NASDAQ we find that our model successfully captures key features of the technology boom of the 1990s. We obtain further evidence supporting our model by using a panel-data VAR framework. We find that orthogonalized shocks to dispersion have positive and statistically significant effects on Tobin s Q net equity issuance and real investment results that are consistent with the model s predictions. Key words investment stock market bubble dispersion Gilchrist Department of Economics Boston University e-mail sgilchri@ . Himmelberg Research and Market Analysis .