, while idiosyncratic productivity and demand shocks smooth away microeconomic non-convexities and are often used as a …

Is real investment fully determined by fundamentals or is it sometimes affected by stockmarket misvaluation? We … introduce three new tests that: measure the reaction of investment to sales shocks for firms that may be overvalued; use Fama … misvaluation into standard investment equations to estimate the quantitative effect of misvaluation on investment. Overall, the …