Dramatic fluctuations in the stock market raise questions about whether actual prices correspond to fundamentals. Even if there are "bubbles", they may not distort real behaviour if managers base investment decisions on fundamentals. Using a new specification testing strategy based on combining...

We characterize a firm as a nexus of activities and projects with their associated cashflow distributions across states of the world and time. With specialized managers intent on maximizing firm value, we show that such a representation leads to a transformation possibility frontier between the...