The Equity Share in New Issues and Aggregate Stock Returns
65 Pages Posted: 12 Aug 1999 Last revised: 13 Jan 2009
Date Written: October 1, 1999
The share of equity issues in total new equity and debt issues is a strong predictor of U.S. stock market returns between 1928 and 1997. In particular, firms issue relatively more equity than debt just before periods of low market returns. The equity share in new issues has stable predictive power in both halves of the sample period, and after controlling for other known predictors. We do not find support for efficient market explanations of the results. Instead, the fact that the equity share sometimes predicts significantly negative market returns suggests inefficiency and that firms time the market component of their returns when issuing securities.
JEL Classification: G12, G14, G32
Suggested Citation: Suggested Citation