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Corporate Financing Activities and Contrarian Investment


  • Turan G. Bali
  • K. Ozgur Demirtas
  • Armen Hovakimian


This paper investigates the risk versus mispricing explanation of superior returns to contrarian strategies using the interactions between value-to-market indicators and corporate financing transactions that increase or decrease a firm's outstanding equity. Portfolio-level analyses and firm-level cross-sectional regressions indicate that the well-documented contrarian profits soar when value stocks which repurchase shares (value repurchasers) and growth stocks which issue shares (growth issuers) are considered. Various risk measures indicate that value repurchasers are not riskier than growth issuers. Furthermore, time-series of realized growth rates, analysts' long-term growth estimates, and sensitivity of portfolio returns to investor sentiment support the misvaluation explanation. Copyright 2010, Oxford University Press.

Suggested Citation

  • Turan G. Bali & K. Ozgur Demirtas & Armen Hovakimian, 2010. "Corporate Financing Activities and Contrarian Investment," Review of Finance, European Finance Association, vol. 14(3), pages 543-584.
  • Handle: RePEc:oup:revfin:v:14:y:2010:i:3:p:543-584

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    Cited by:

    1. Demirtas, K. Ozgur & Rodgers Cornaggia, Kimberly, 2013. "Initial credit ratings and earnings management," Review of Financial Economics, Elsevier, vol. 22(4), pages 135-145.
    2. Serkan İmişiker & Rasim Özcan & Bedri Kamil Onur Taş, 2015. "Price Manipulation by Intermediaries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(4), pages 788-797, July.
    3. repec:mes:emfitr:v:51:y:2015:i:4:p:788-797 is not listed on IDEAS
    4. Walkshäusl, Christian, 2015. "Equity financing activities and European value-growth returns," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 27-40.
    5. Papanastasopoulos, Georgios, 2017. "Accrual anomaly and corporate financing activities," Finance Research Letters, Elsevier, vol. 20(C), pages 125-129.
    6. Huang, Wei & Liu, Qianqiu & Ghon Rhee, S. & Wu, Feng, 2012. "Extreme downside risk and expected stock returns," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1492-1502.
    7. Atilgan, Yigit & Demirtas, K. Ozgur & Erdogan, Alper, 2016. "Share issuance and equity returns in Borsa Istanbul," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 320-333.
    8. repec:eee:phsmap:v:501:y:2018:i:c:p:188-204 is not listed on IDEAS

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