"Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure...

A large part of the current debate on US stock price behavior concentrates on the question of whether stock prices are driven by fundamentals or by non-fundamental factors. In this paper we put forward the hypothesis that a present value model with time-varying expected returns provides an...

Firms significantly reduce their investment in response to non-fundamental drops in the stock price of their product-market peers. We argue that this result arises because of managers' limited ability to filter out the noise in stock prices when using them as signals about their investment...