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  • October 2000
  • Article
  • Journal of Finance

The Equity Share in New Issues and Aggregate Stock Returns

By: Malcolm Baker and Jeffrey Wurgler
  • Format:Print
  • | Pages:39
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Abstract

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 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; Debt Securities; Forecasting and Prediction; Accounting Industry; United States

Citation

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.
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About The Author

Malcolm P. Baker

Finance
→More Publications

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More from the Authors
  • Leverage and the Beta Anomaly By: Malcolm Baker, Mathias F. Hoeyer and Jeffrey Wurgler
  • Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds By: Malcolm Baker, Daniel Bergstresser, George Serafeim and Jeffrey Wurgler
  • Detecting Anomalies: The Relevance and Power of Standard Asset Pricing Tests By: Malcolm Baker, Patrick Luo and Ryan Taliaferro
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