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Evaluating Value Weighting: Corporate Events and Market Timing

  • Owen A. Lamont

Corporate events, such as new issues and new lists, appear in waves. These waves imply that the market portfolio has a time-varying weight in new lists, and one can decompose the market return into a fixed weight return plus a timing return. Most of the reduction in aggregate market returns caused by holding new lists comes from timing, not from average underperformance. When new lists are a high fraction of the market, subsequent returns for both new and old lists are low. A mean variance optimizing investor holding the market would be better off replacing holdings of new lists with old lists, t-bills, or even currency stuffed in a mattress.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9049.

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Date of creation: Jul 2002
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Handle: RePEc:nbr:nberwo:9049
Note: AP CF
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