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Characteristic Timing


Robin M. Greenwood


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Samuel Gregory Hanson


Harvard Business School

February 10, 2010

Harvard Business School Finance Working Paper No. 09-099

Abstract:     
We use differences between the attributes of stock issuers and repurchasers to forecast characteristic-related stock returns. For example, we show that large firms underperform following years when issuing firms are large relative to repurchasing firms. Our approach is useful for forecasting returns to portfolios based on book-to-market (HML), size (SMB), price, distress, payout policy, profitability, and industry. We consider interpretations of these results based on both time-varying risk premia and mispricing. Our results are primarily consistent with the view that firms issue and repurchase shares to exploit time-varying characteristic mispricing.

Number of Pages in PDF File: 56

Keywords: Limits-to-arbitrage, characteristics, mispricing, capital structure, cross-section of stock returns

JEL Classification: G14, G32

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Date posted: December 26, 2008 ; Last revised: February 15, 2010

Suggested Citation

Greenwood, Robin M. and Hanson, Samuel Gregory, Characteristic Timing (February 10, 2010). Harvard Business School Finance Working Paper No. 09-099. Available at SSRN: http://ssrn.com/abstract=1320187 or http://dx.doi.org/10.2139/ssrn.1320187

Contact Information

Robin M. Greenwood (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6979 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Samuel Gregory Hanson
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
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