Positive valuation shocks predict bond issuance but not stock issuance

The disciplinary force of arbitrage capital?

When you buy or sell a stock no money reaches the firm. When its stock price goes up, the firm feels richer but no new capital is immediately available for real investment. All that happens is that the firm’s mark-to-market valuation goes up so that it may, possibly, market conditions permitting, raise more capital. In order to do so, the firm would hav…