Andrew Lapthorne, a quantitative strategist at Societe Generale SA, recently looked at the correlation between business investment and individual stock prices, in a report titled "How does too much or too little investment affect a company's stock price?".

Some of their results were surprising: Stocks of companies that over- or underinvest get punished in Europe and North America. However, in Japan, firms don't seem to suffer as much for the consequences of their investments.

Take a look at the three charts below:


Overinvesting seems to be penalized more quickly than underinvesting. Overinvestment is a cost -- and a visible one -- which seems to hurt stock prices sooner rather than later. The effects of underinvestment have a future effect, as penalties to stock prices.

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Barry L Ritholtz at