Can Managers Forecast Aggregate Market Returns?

29 Pages Posted: 26 May 2003

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: May 12, 2003

Abstract

Previous studies have found that the share of equity in total new issues (S) is negatively correlated with future equity market returns (in-sample). Researchers have interpreted this finding as evidence that managers are able to predict the systematic component of their stock returns and to issue equity when the market is overvalued. In this paper we show that after controlling for "look-ahead bias", S does not provide real-time predictive power for forecasting market returns. Further, we show that even the in-sample predictive power of S appears to stem from aggregate pseudo market timing as in Schultz (2003) and not from any abnormal ability of managers to time the equity markets.

JEL Classification: G14

Suggested Citation

Butler, Alexander W. and Grullon, Gustavo and Weston, James Peter, Can Managers Forecast Aggregate Market Returns? (May 12, 2003). Available at SSRN: https://ssrn.com/abstract=407340 or http://dx.doi.org/10.2139/ssrn.407340

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Gustavo Grullon (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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