The aggregate change in shares and the level of stock prices
The average change in shares of equity is negatively correlated with estimates of the equity premium calculated using the dividend-ratio model of Campbell and Shiller, as well as with a variant of the model written in terms of the earnings-price ratio. This correlation is consistent with corporations issuing equity when it is a relatively inexpensive source of finance and repurchasing equity when it is a relatively good investment. However, when the retirement of shares resulting from mergers are included, the average change in shares is no longer significantly correlated with the equity premium.
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References listed on IDEAS
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- Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
- Campbell, John & Shiller, Robert, 1988.
"Stock Prices, Earnings, and Expected Dividends,"
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- Mankiw, N.G. & Romer, D. & Shapiro, M.D., 1989.
"Stock Market Forecastability And Volatility: A Statistical Appraisal,"
89-21, Michigan - Center for Research on Economic & Social Theory.
- N. Gregory Mankiw & David Romer & Matthew D. Shapiro, 1991. "Stock Market Forecastability and Volatility: A Statistical Appraisal," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 455-477.
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- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
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