Abstract: The stock of firms that issue equity has, on average, performed poorly
in subsequent years, while the stock of firms that repurchase has
typically done well. One explanation for this pattern is that firms are
exploiting their superior knowledge about the value of their stock by buying it
when it is undervalued and selling it when it is overvalued. This paper
presents supporting evidence for this explanation of the excess returns: The
change in shares outstanding is positively correlated with proxies for the
deviation of current stock price from fundamental value; the excess returns
following the change in shares remain significant after controlling for these
proxies; and the changes in shares that can be explained by the proxies predict
stock returns more powerfully than changes in shares explained by
other reasons.
Keywords: Equity issuance, equity repurchase, excess returns
Full paper (158 KB PDF)
| Full paper (309 KB Postscript)
Home | Economic research and data | FR working papers | FEDS | 1999 FEDS papers
Accessibility
To comment on this site, please fill out our feedback form.
Last update: March 17, 1999
|