Do Bubbles Lead To Overinvestment?: A Revealed Preference Approach

Many economists believe that the stock market plays an important role in efficiently allocating capital to its most productive uses. This standard story of the stock market was called into question by events in the late 1990s, when some observers believed that stock market overvaluation - or a bubble - led to overinvestment. Both the standard and overinvestment stories involve discount rates and, to differentiate between the two stories, this paper examines the discount rates used by firms in making their investment decisions.

Provided by: Ifo Institute for Economic Research Topic: CXO Date Added: Jun 2011 Format: PDF

Find By Topic