Investment Exuberance Under Cross Learning

Managerial Learning Through Customer–supplier Links

“…Dow and Gorton (1997) find that information flow about an individual firm's future growth opportunities, from the stock market, is not limited to the firm itself; the flow may occur in other directions as well. According to Huang and Zeng (2014) and Foucault and Fresard (2014), cross-asset managerial learning is possible and firms can learn from the information in other firms' stock prices.…”

Do Managers Learn from Short Sellers?

“…Luo (2005) finds that managers use the information from stock returns around acquisition announcements to determine whether to consummate the deals later. Moreover, recent studies, such as Foucault and Fresard (2014), Ozoguz and Rebello (2015), and Huang and Zeng (2015), show theoretically and empirically that besides from their own firms' stock prices, managers also seek to learn from peer firms' stock prices to obtain additional information about common shocks when making corporate investment decisions.…”

“…Since there is no natural empirical proxy for the amount of information that managers can learn from shortable peers' stock prices, I look at the relative number of shortable firms within an industry. Under the two-factor framework in Huang and Zeng (2015), each firm's stock price is a noisy but informative signal for common shocks. Thus, I expect that the joint observation of more shortable peers' stock prices within the industry provides a greater amount of information on industry-level shocks from short sellers.…”

“…3 Edmans, Jayaraman and Schneemeier (2016) argue that outside investors are better informed about industry prospects, and hence managers may wish to learn outsiders' information from observing stock prices. 4 See, for example, Foucault and Fresard (2014), Ozoguz and Rebello (2015), and Huang and Zeng (2015). conditions, they have incentives to pay attention to their shortable peers' stock prices, which may provide them with incremental information about the common demand and productivity from short sellers.…”

Financial Markets, the Real Economy, and Self‐Fulfilling Uncertainties

“…In fact, the initial recession did not look particularly severe until the third quarter of 2008, when full financial panic broke out after the collapse of Lehman Brothers and aggregate output fell sharply. It is now widely believed that a deterioration in fundamentals and a loss of confidence together drive this type of two-stage crisis (see, e.g., the London School of Economics Stamp Lecture on January 13, 2009 by Fed Chairman Ben Bernanke, available at https://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm).3 For theoretical work, see, for example,Fishman and Hagerty (1992),Leland (1992),Dow and Gorton (1997), Titman (1999, 2013),Hirshleifer, Subrahmanyam, and Titman (2006),Foucault and Gehrig (2008),Goldstein and Guembel (2008),Ozdenoren and Yuan (2008),Bond, Goldstein, and Prescott (2010),Kurlat and Veldkamp (2015),Huang and Zeng (2016),Sockin (2017), andFoucault and Frésard (2019).…”