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Share Issuance and Factor Timing

52 Pages Posted: 17 Mar 2010 Last revised: 5 Dec 2010

Robin M. Greenwood

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

Samuel Gregory Hanson

Harvard Business School

Multiple version iconThere are 3 versions of this paper

Date Written: December 2, 2010

Abstract

We show that characteristics of stock issuers can be used to forecast important common factors in stocks returns such as those associated with book-to-market, size, and industry. Specifically, we use differences between the attributes of stock issuers and repurchasers to forecast characteristic-related factor returns. For example, we show that large firms underperform following years when issuing firms are large relative to repurchasing firms. While our strongest results are for portfolios based on book-to-market, size (i.e., we forecast the HML and SMB factors), and industry, our approach is also useful for forecasting factor returns associated with distress, payout policy, and profitability.

Keywords: Limits-to-arbitrage, characteristics, mispricing, capital structure, cross-section of stock returns

JEL Classification: G14, G32

Suggested Citation

Greenwood, Robin M. and Hanson, Samuel Gregory, Share Issuance and Factor Timing (December 2, 2010). Available at SSRN: https://ssrn.com/abstract=1572174 or http://dx.doi.org/10.2139/ssrn.1572174

Robin M. Greenwood (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6979 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Samuel Gregory Hanson

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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