Abstract
I use financial statement information to examine intertemporal investment decisions by publicly traded firms at the aggregate level. I find that aggregate corporate investment negatively predicts aggregate returns in the US and abroad. Corporations invest more when investor sentiment is higher, the yield curve is flatter, and analysts are more optimistic. Higher aggregate investment forecasts lower aggregate profitability, lower earnings announcement returns, a widening of the ‘value premium’, lower returns on growth stocks and lower macroeconomic growth. My findings are consistent with the long-held conjecture that aggregate investment is inefficient, with consequences for prices and fundamentals at the aggregate level.
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