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