Anomalies

Posted: 8 Dec 2009

See all articles by Erica X. N. Li

Erica X. N. Li

University of Michigan, Stephen M. Ross School of Business

Dmitry Livdan

University of California, Berkeley

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: November 2009

Abstract

We take a simple q-theory model and ask how well it can explain external financing anomalies, both qualitatively and quantitatively. Our central insight is that optimal investment is an important driving force of these anomalies. The model simultaneously reproduces procyclical equity issuance waves, the negative relation between investment and average returns, long-term underperformance following equity issues, positive long-term drift following cash distributions, the mean-reverting operating performance of issuing and cash-distributing firms, and the failure of the CAPM in explaining the long-term stock-price drifts. However, the model cannot fully capture the magnitude of the positive drift following cash distributions observed in the data.

JEL Classification: D21, D92, E22, E44, G12, G14, G31, G32, G35

Suggested Citation

Li, Erica X. N. and Livdan, Dmitry and Zhang, Lu, Anomalies (November 2009). The Review of Financial Studies, Vol. 22, Issue 11, pp. 4301-4334, 2009. Available at SSRN: https://ssrn.com/abstract=1519272 or http://dx.doi.org/hhp023

Erica X. N. Li (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Dmitry Livdan

University of California, Berkeley ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 642-4733 (Phone)

Lu Zhang

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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