Question
Define underinvestment and overinvestment. Why might a firm underinvest? Why might a firm overinvest? Assume you've read a recent article (for instance, suggesting that estimating
Define "underinvestment" and "overinvestment". Why might a firm underinvest? Why might a firm overinvest? Assume you've read a recent article (for instance, suggesting that estimating betas with daily stock returns (as compared to weekly or monthly returns) leads to downwardly biased beta estimates. You know that your firm's CFO advocates for using daily stock returns in estimating betas for capital budgeting analysis. If the premise of the article is true, would your firm's use of daily returns lead to "over" or "under" investment? Justify your answer.
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