Article | Journal of Finance | October 2000

The Equity Share in New Issues and Aggregate Stock Returns

by Malcolm Baker and Jeffrey Wurgler


The share of equity issues in total new equity and debt issues is a strong predictor of U.S. stock market returns between 1928 and 1997. In particular, firms issue relatively more equity than debt just before periods of low market returns. The equity share in new issues has stable predictive power in both halves of the sample period and after controlling for other known predictors. We do not find support for efficient market explanations of the results. Instead, the fact that the equity share sometimes predicts significantly negative market returns suggests inefficiency and that firms time the market component of their returns when issuing securities.

Keywords: Equity; Borrowing and Debt; Stocks; Markets; Capital Markets; Mergers and Acquisitions; Debt Securities; Forecasting and Prediction; Accounting Industry; United States;


Baker, Malcolm, and Jeffrey Wurgler. "The Equity Share in New Issues and Aggregate Stock Returns." Journal of Finance 55, no. 5 (October 2000): 2219–57.