Evaluating Value Weighting: Corporate Events and Market Timing

52 Pages Posted: 11 Jul 2002 Last revised: 19 Jul 2002

See all articles by Owen A. Lamont

Owen A. Lamont

Harvard University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2002

Abstract

Corporate events, such as new issues and new lists, appear in waves. These waves imply that the market portfolio has a time-varying weight in new lists, and one can decompose the market return into a fixed weight return plus a timing return. Most of the reduction in aggregate market returns caused by holding new lists comes from timing, not from average underperformance. When new lists are a high fraction of the market, subsequent returns for both new and old lists are low. A mean variance optimizing investor holding the market would be better off replacing holdings of new lists with old lists, t-bills, or even currency stuffed in a mattress.

Suggested Citation

Lamont, Owen A., Evaluating Value Weighting: Corporate Events and Market Timing (July 2002). NBER Working Paper No. w9049. Available at SSRN: https://ssrn.com/abstract=318844

Owen A. Lamont (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

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