Using options- and press-based proxies for CEO overconfidence (Malmendier and Tate 2005a, 2005b, 2008), we find that over the 1993-2003 period, firms with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater...

We test how market overvaluation affects corporate innovation. Estimated stock overvaluation is very strongly associated with R&D, innovative output, and measures of innovative novelty, originality, and scope. R&D is much more sensitive than capital investment to overvaluation. Misvaluation...