Empirical evidence suggests that the relationship between a firm's investment and its stock prices is
A) strongly negative
B) weakly negative
C) nonexistent; the two variables are independent
D) weakly positive
E) strongly positive

Question

Quizplus · Accepted Answer

Empirical evidence suggests that the relationship between a firm's investment and its stock prices is weakly positive. This is because when a company invests in growth opportunities, investors become optimistic about the future potential earnings and the value of the company, leading to an increase in the stock price. However, the positive relationship may not always hold true in the short-term, and other factors such as market conditions and economic factors may also influence the stock price.

Empirical Evidence Suggests That the Relationship Between a Firm's Investment