The real impact of stock market mispricing - Evidence from Australia

Xin Chang, Lewis H.K. Tam, Tek Jun Tan, Lap Bun Wong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)388-408
Number of pages21
JournalPacific Basin Finance Journal
Volume15
Issue number4
DOIs
Publication statusPublished - 1 Sep 2007
Externally publishedYes

Keywords

  • Australian firms
  • Equity dependence
  • Investment
  • Investment-Q sensitivity
  • Market inefficiency

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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