Should managers, when taking investment decisions, follow the signals given by the stock market even when those do not coincide with their own assessment of fundamentals? Do they? In this paper we review theoretical arguments and examine the empirical evidence. First, we look at the relation between investment, market valuation, and proxies for fundamentals over the last 90 years. Second, we look at the behavior of investment during the episodes associated with the crashes of 1929 and 1987. We find a limited role of market valuation, given fundamentals.

Why are there such large differences in saving rates across countries? Conventional economic analyses have not been successful in explaining international saving differences, so economists have sometimes suggested that national saving differences may be explained by cultural differences. This paper tests the hypothesis that cultural factors influence saving by comparing saving patterns of immigrants to Canada from different cultures. Using data from the Canadian Survey of Family Expenditures, we find no evidence of cultural effects on saving.