Pseudo Market Timing and Predictive Regressions

37 Pages Posted: 3 Nov 2008

See all articles by Malcolm P. Baker

Malcolm P. Baker

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

Ryan Taliaferro

Acadian Asset Management

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: September 2004

Abstract

A number of studies claim that aggregate managerial decision variables, such as aggregate equity issuance, have power to predict stock or bond market returns. Recent research argues that these results may be driven by an aggregate time-series version of Schultz s (2003) pseudo market timing bias. We use standard simulation techniques to estimate the size of the aggregate pseudomarket timing bias for a variety of predictive regressions based on managerial decision variables. We find that the bias can explain only about one percent of the predictive power of the equity share in new issues, and that it is also much too small to overturn prior inferences about thepredictive power of corporate investment plans, insider trading, dividend initiations, or the maturity of corporate debt issues.

Suggested Citation

Baker, Malcolm P. and Taliaferro, Ryan and Wurgler, Jeffrey A., Pseudo Market Timing and Predictive Regressions (September 2004). NYU Working Paper No. FIN-04-021, Available at SSRN: https://ssrn.com/abstract=1294456

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ryan Taliaferro

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

Jeffrey A. Wurgler

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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