Equity Financing Risk

62 Pages Posted: 12 Jun 2020

See all articles by Mamdouh Medhat

Mamdouh Medhat

City University London - Sir John Cass Business School

Berardino Palazzo

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: May, 2020


A risk factor linked to aggregate equity issuance conditions explains the empirical performance of investment factors based on the asset growth anomaly of Cooper, Gulen, and Schill (2008). This new risk factor, dubbed equity financing risk (EFR) factor, subsumes investment factors in leading linear factor models. Most importantly, when substituted for investment factors, the EFR factor improves the overall pricing performance of linear factor models, delivering a significant reduction in absolute pricing errors and their associated t-statistics for several anomalies, including the ones related to R&D expenditures and cash-based operating profitability.

JEL Classification: G12, G31, G35

Suggested Citation

Medhat, Mamdouh and Palazzo, Berardino, Equity Financing Risk (May, 2020). FEDS Working Paper No. 2020-037, Available at SSRN: https://ssrn.com/abstract=3624930 or http://dx.doi.org/10.17016/FEDS.2020.037

Mamdouh Medhat (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/mamdouhmedhatresearch/

Berardino Palazzo

Federal Reserve Board ( email )

1801 K street NW
Washington, DC 20036
United States

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