Optimal Market Timing / Erica X. N. Li, Dmitry Livdan, Lu Zhang.

Format:

Book

Author/Creator:

Li, Erica X. N.

Contributor:

National Bureau of Economic Research.

Livdan, Dmitry.

Zhang, Lu.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12014.

NBER working paper series no. w12014

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance; the negative relation between aggregate equity share and future stock market returns; long-term underperformance following equity issuance and the positive relation of its magnitude with the volume of issuance; the mean-reverting behavior in the operating performance of issuing firms; and the positive long-term stock price drift of firms distributing cash and its positive relation with book-to-market. We conclude that systematic mispricing seems unnecessary to generate the return-related evidence often interpreted as behavioral underreaction to market timing.

Notes:

Print version record

February 2006.