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

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

Access to Document

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.Michou@ed.ac.uk
- Business School - Senior Lecturer in Finance
- Accounting and Finance
Person: Academic: Research Active
Hang Zhou
- Accounting and Finance
Person: Academic: Research Active

Cite this

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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.",

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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.

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KW - abnormal returns

KW - LONG-TERM PERFORMANCE

KW - CROSS-SECTION

KW - EARNINGS MANAGEMENT

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KW - RIGHTS ISSUES

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KW - INVESTMENT

KW - RETURNS

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