A corporate arbitrage approach to the cross-section of stock returns
By: Robin Greenwood and Samuel Gregory Hanson
Contributors: Hanson, Samuel (Samuel Gregory); Harvard Business School
Series: Working paper / Harvard Business School -- 09-099; Working paper (Harvard Business School) -- 09-099
Publisher: Harvard Business School
Published: 2009
Place of publication: Boston]
Language: eng
Number of pages: 57
Description: When investors overvalue a particular firm characteristic, corporations endowed with that characteristic can absorb some of the demand by issuing equity. We use time-series variation in differences between the attributes of stock issuers and repurchasers to shed light on characteristic-related mispricing. When issuing firms are large relative to repurchasing firms, for example, we find that large firms subsequently underperform. This holds true even when we restrict attention to the returns of firms that do not issue at all, suggesting that issuance is partly an attempt to arbitrage mispriced characteristics. Our approach helps forecast returns to portfolios based on book-to-market, size, price, distress, payout policy, profitability, and industry. Our results provide a new perspective on equity market timing more generally.
Notes: "March 2009"--Publisher's website.

Includes bibliographical references.