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Studies In Income, Investment, And Stock Returns: The Permanent Income Hypothesis And The Overinvestment Puzzle, Insun Yang
Finance - Dissertations
Increased sales drive earnings; increased earnings drive investment; and increased investment drives higher stock returns. In this dissertation, I studied the relationship of sales income, firm investment increase and stock returns. The first paper, titled "Permanent Income and Investment", investigates the relationship between changes in sales income and levels of investment. When firms experience increases in sales that they consider to be permanent, the present value of expected profits also increase, leading to increases in the firms' investments. Firm's investment behavior is primarily explained by permanent changes in sales incomes and not by transitory change. The second paper, titled "Firm …