Corporate Financing Activities and Contrarian Investment

Review of Finance, Vol. 14, No. 3, pp. 543-584, 2010

Georgetown McDonough School of Business Research Paper

45 Pages Posted: 18 Jul 2009 Last revised: 19 Apr 2013

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

K. Ozgur Demirtas

Sabanci University Graduate School of Management

Armen Hovakimian

Baruch College - Zicklin School of Business

Date Written: July 15, 2009

Abstract

This paper investigates the risk versus mispricing explanation of superior returns to contrarian strategies using the interactions between value-to-market indicators and corporate financing transactions that increase or decrease a firm's outstanding equity. Portfolio-level analyses and firm-level cross-sectional regressions indicate that the well-documented contrarian profits soar when value stocks which repurchase shares (value repurchasers) and growth stocks which issue shares (growth issuers) are considered. Various risk measures indicate that value repurchasers are not riskier than growth issuers. Furthermore, time-series of realized growth rates, analysts' long-term growth estimates, and sensitivity of portfolio returns to investor sentiment support the misvaluation explanation.

JEL Classification: M41, G12, G24

Suggested Citation

Bali, Turan G. and Demirtas, K. Ozgur and Hovakimian, Armen, Corporate Financing Activities and Contrarian Investment (July 15, 2009). Review of Finance, Vol. 14, No. 3, pp. 543-584, 2010; Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=1434395

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

K. Ozgur Demirtas (Contact Author)

Sabanci University Graduate School of Management ( email )

Sabanci University, School of Management
Orhanli Tuzla
Orhanlı-Tuzla, Istanbul, 34956
Turkey
(+90) 216-483-9985 (Phone)
(+90) 216-483-9699 (Fax)

Armen Hovakimian

Baruch College - Zicklin School of Business ( email )

One Bernard Baruch Way
Box B10-225
New York, NY 10010
United States
646-312-3490 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://zicklin.baruch.cuny.edu/faculty-profile/armen-hovakimian/

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