Net equity issuance effect in the UK

Hang Zhou; Seth Armitage; Maria Michou

doi:10.1080/1351847X.2019.1601119

Net equity issuance effect in the UK

Hang Zhou, Seth Armitage^*, Maria Michou

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.

Original language	English
Number of pages	20
Journal	The European Journal of Finance
Early online date	12 Apr 2019
DOIs	https://doi.org/10.1080/1351847X.2019.1601119
Publication status	Published - 13 Apr 2019

Keywords

Net equity issuance
net repurchases
asset pricing anomalies
factor models
abnormal returns
LONG-TERM PERFORMANCE
CROSS-SECTION
EARNINGS MANAGEMENT
SHARE ISSUANCE
LIQUIDITY RISK
RIGHTS ISSUES
STOCK
INVESTMENT
RETURNS
MARKET

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10.1080/1351847X.2019.1601119

ZhouEtalEJF2019NetEquityIssuanceEffect
This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 12 April 2019, available online: https://www.tandfonline.com/doi/full/10.1080/1351847X.2019.1601119
Accepted author manuscript, 1.55 MB

Maria Michou
- Maria.Michoued.acuk
- Business School - Senior Lecturer in Finance
- Accounting and Finance
Person: Academic: Research Active

Cite this

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title = "Net equity issuance effect in the UK",

abstract = "Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.",

keywords = "Net equity issuance, net repurchases, asset pricing anomalies, factor models, abnormal returns, LONG-TERM PERFORMANCE, CROSS-SECTION, EARNINGS MANAGEMENT, SHARE ISSUANCE, LIQUIDITY RISK, RIGHTS ISSUES, STOCK, INVESTMENT, RETURNS, MARKET",

author = "Hang Zhou and Seth Armitage and Maria Michou",

note = "Funding Information: We appreciate the helpful comments of three anonymous reviewers, Andrew Stark, and participants at the BAFA Annual Conference 2015. Publisher Copyright: {\textcopyright} 2019, {\textcopyright} 2019 Informa UK Limited, trading as Taylor & Francis Group.",

year = "2019",

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day = "13",

doi = "10.1080/1351847X.2019.1601119",

language = "English",

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AU - Zhou, Hang

AU - Armitage, Seth

AU - Michou, Maria

N1 - Funding Information: We appreciate the helpful comments of three anonymous reviewers, Andrew Stark, and participants at the BAFA Annual Conference 2015. Publisher Copyright: © 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group.

PY - 2019/4/13

Y1 - 2019/4/13

N2 - Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.

AB - Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.

KW - Net equity issuance

KW - net repurchases

KW - asset pricing anomalies

KW - factor models

KW - abnormal returns

KW - LONG-TERM PERFORMANCE

KW - CROSS-SECTION

KW - EARNINGS MANAGEMENT

KW - SHARE ISSUANCE

KW - LIQUIDITY RISK

KW - RIGHTS ISSUES

KW - STOCK

KW - INVESTMENT

KW - RETURNS

KW - MARKET

U2 - 10.1080/1351847X.2019.1601119

DO - 10.1080/1351847X.2019.1601119

M3 - Article

JO - The European Journal of Finance

JF - The European Journal of Finance

SN - 1351-847X

ER -

Net equity issuance effect in the UK

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Keywords

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Maria Michou

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