- The Experience
- The Programs
- MBA Program
- MSx Program
- PhD Program
- Executive Education
- Stanford Ignite
- Research Fellows Program
- Summer Institute for General Management
- Stanford LEAD Certificate: Corporate Innovation
- Stanford Innovation & Entrepreneurship Certificate
- Executive Program for Nonprofit Leaders
- Executive Program in Social Entrepreneurship
- Executive Program for Education Leaders
- Stanford go.to.market
- Faculty & Research
- Insights
- Alumni
- Events
You are here
Aggregate Investment and Investor Sentiment
Aggregate Investment and Investor Sentiment
May 6,2014Working Paper No. 3061
Using bottom-up information gleaned from corporate financial statements, we examine the relation between aggregate investment, future equity returns, and investor sentiment. Consistent with the business cycle literature, corporate investments peak during periods of positive sentiment (measured multiple ways), yet these periods are followed by lower equity returns (particularly for “growth” stocks). This pattern exists in most developed countries, and survives controls for discount rates, equity flows, valuation multiples, operating accruals, and other investor sentiment measures. Higher aggregate investments also precede greater earnings disappointments, lower short-window earnings announcement returns, and lower macroeconomic growth. We conclude aggregate corporate investment is an alternative, and possibly sharper, measure of market-wide investor sentiment.
Keywords
Investor Sentiment, corporate investments, business cycles, market efficiency, catering hypothesis