Predicting Returns with Managerial Decision Variables: Is There a Small-Sample Bias?

Posted: 22 Feb 2006 Last revised: 12 Aug 2008

See all articles by Malcolm P. Baker

Malcolm P. Baker

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

Ryan Taliaferro

Acadian Asset Management

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

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Abstract

Many studies find that aggregate managerial decision variables, such as aggregate equity issuance, predict stock or bond market returns. Recent research argues that these findings may be driven by an aggregate time-series version of Schultzs (2003) pseudo market-timing bias. Using standard simulation techniques, we find that the bias is much too small to account for the observed predictive power of the equity share in new issues, corporate investment plans, insider trading, dividend initiations, or the maturity of corporate debt issues.

Keywords: Predictive regressions, market timing, small sample bias

JEL Classification: C22, G12, G14, G32

Suggested Citation

Baker, Malcolm P. and Taliaferro, Ryan and Wurgler, Jeffrey A., Predicting Returns with Managerial Decision Variables: Is There a Small-Sample Bias?. Journal of Finance, Vol. 61, No. 4, pp. 1711-1730, August 2006, Available at SSRN: https://ssrn.com/abstract=885781

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Ryan Taliaferro

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

Jeffrey A. Wurgler (Contact Author)

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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