Share Issuance and Expected Returns Around the World

Abstract

Practitioners and academics often consider IPO activity as a gauge of investor optimism and market valuation. This study investigates the cross-sectional implications of this concept at the country level. We use sorting and cross-sectional tests to examine linkages between past share issuance and future returns across 78 countries for years 1995-2015. We find convincing and robust evidence that the share issuance is negatively related with future returns across countries. Markets with high past stock issuance markedly underperform markets with low stock issuance. This phenomenon is particularly strong across small countries, but insignificant within across large ones.

Keywords: share issuance, asset pricing, hot issue market, IPO, initial public offerings, return predictability, asset pricing, country-level anomalies, country selection strategies, cross section of stock returns

JEL Classification: G11, G12, G15