| Why Does the Change in Shares Predict Stock Returns? Contributor(s): Penny Hill Press (Editor), Federal Reserve Board (Author) |
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ISBN: 1530973740 ISBN-13: 9781530973743 Publisher: Createspace Independent Publishing Platform OUR PRICE: $12.30 Product Type: Paperback - Other Formats Published: April 2016 |
| Additional Information |
| BISAC Categories: - Business & Economics | Investments & Securities - General |
| Physical Information: 0.09" H x 8.5" W x 11.02" (0.28 lbs) 44 pages |
| Descriptions, Reviews, Etc. |
| Publisher Description: 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. |