Finance Seminar with Laurent Frésard, Robert H. Smith School of Business, University of Maryland

The Department of Finance is proud to announce the upcoming seminar with Laurent Frésard, Robert H. Smith School of Business, University of Maryland

Laurent Frésard will be presenting:

Learning from Peers' Stock Prices and Corporate Investment

Authors

Thierry Foucault, HEC, Paris& Laurent Frésard, University of Maryland

Abstract

There is a positive relationship between the investment of a firm and the stock price of its peers, defined as firms selling related products. It is stronger when the level of informed trading in a firm’s stock is weak. Moreover, the link between the investment of a firm and its own stock price is weaker when the level of informed trading in its peers’ stocks is high, or when the demand for its products is more correlated with the demand for its peers’ products. We show theoretically that these findings are expected when managers use peer stock prices as a source of information but not otherwise. Overall, our results provide new insights on how financial markets affect the real economy.

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