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.
|Date of creation:||1999|
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References listed on IDEAS
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- David Ikenberry & Josef Lakonishok & Theo Vermaelen, 1994.
"Market Underreaction to Open Market Share Repurchases,"
NBER Working Papers
4965, National Bureau of Economic Research, Inc.
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"Stock Prices, Earnings and Expected Dividends,"
NBER Working Papers
2511, National Bureau of Economic Research, Inc.
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89-21, Michigan - Center for Research on Economic & Social Theory.
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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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