Imperfect capital markets, income distribution and the choice of external finance: A financial equilibrium approach

2007 ◽  
Vol 47 (4) ◽  
pp. 507-520 ◽  
Author(s):  
Spiros Bougheas
Keyword(s):  
Income Distribution ◽  
Capital Markets ◽  
Financial Equilibrium ◽  
External Finance ◽  
Equilibrium Approach ◽  
Imperfect Capital Markets

International Real Estate Review

2016 ◽  
Vol 19 (4) ◽  
pp. 435-492
Author(s):  
Kuang-Liang Chang ◽  
◽  
Nan-Kuang Chen ◽  
Charles Leung ◽  
◽  
...  
Keyword(s):  
Real Estate ◽  
Capital Markets ◽  
Predictive Power ◽  
Asset Returns ◽  
Macroeconomic Variables ◽  
External Finance ◽  
Simulation Based ◽  
Recent Developments ◽  
Competing Models ◽  
Imperfect Capital Markets

This paper revisits the relationships among macroeconomic variables and asset returns. Based on recent developments in econometrics, we categorize competing models of asset returns into different "Equivalence Predictive Power Classes" (EPPCs). During the pre-crisis period (1975-2005), some models emphasize that imperfect capital markets outperform an AR(1) for the forecast of housing returns. After 2006, a model that includes both an external finance premium (EFP) and the TED spread "learns and adjusts" faster than competing models. Models that encompass GDP experience a significant decay in predictive power. We also demonstrate that a simulation-based approach is complementary to the EPPC methodology.

Capital Market Imperfections and the Sensitivity of Investment to Stock Prices

2009 ◽  
Vol 44 (3) ◽  
pp. 551-578 ◽  
Author(s):  
Alexei V. Ovtchinnikov ◽  
John J. McConnell
Keyword(s):  
Capital Markets ◽  
Stock Prices ◽  
Financial Distress ◽  
Stock Price ◽  
Debt Overhang ◽  
Capital Market Imperfections ◽  
Investment Opportunities ◽  
Imperfect Capital Markets ◽  
Empirical Tests ◽  
External Equity

AbstractPrior studies argue that investment by undervalued firms that require external equity is particularly sensitive to stock prices in irrational capital markets. We present a model in which investment can appear to be more sensitive to stock prices when capital markets are rational, but subject to imperfections such as debt overhang, information asymmetries, and financial distress costs. Our empirical tests support the rational (but imperfect) capital markets view. Specifically, investment–stock price sensitivity is related to firm leverage, financial slack, and probability of financial distress, but is not related to proxies for firm undervaluation. Because, in our model, stock prices reflect the net present values (NPVs) of investment opportunities, our results are consistent with rational capital markets improving the allocation of capital by channeling more funds to firms with positive NPV projects.

Sign in / Sign up

Export Citation Format

Share Document