Stock Market Volatility and Corporate Investment

Stock Market Volatility and Corporate Investment

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Despite concerns are often voiced on the so called a€œexcess volatilitya€ of the stock market, little is known about the implications of market volatility for the real economy. This paper examines whether the stock market volatility affects real fixed investment. The empirical evidence obtained from the US data shows that market volatility has independent effects on investment over and above that of stock returns. Volatility and its changes are negatively related to investment growth. To the extent volatility depresses fixed capital formation and hence future income growth, the results suggest the desirability of reducing stock market volatility.Their work demonstrated that the option of waiting (i.e., the option of delaying a project) is more valuable to the firm the greater the underlying uncertainty so that optimal investment rules differ from the a€œnet present value (NPV)a€ rule usuallyanbsp;...

Title:Stock Market Volatility and Corporate Investment
Author:Zuliu Hu
Publisher:International Monetary Fund - 1995-10-01


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