Composite equity issuance and the cross-section of country and industry returns

Document Type

Article

Source of Publication

Applied Economics

Publication Date

1-8-2023

Abstract

Behavioural finance literature argues that stock issuance contains information on equity valuation. If so, does it predict the cross-section of both country and industry stock returns? To answer this question, we investigate data from 68 markets from 1976 to 2022. We find that composite equity issuance negatively correlates with future aggregate stock returns. An equal-weighted quintile of countries (industries) with the highest issuance underperforms those with the lowest by 0.34% (0.58%) per month. Established risk factors and other anomalies cannot subsume this cross-sectional pattern. Furthermore, the effect remains robust to many considerations. This documented issuance anomaly paves the way for an exploitable international investment strategy.

ISSN

0003-4283

Publisher

Informa UK Limited

First Page

1

Last Page

19

Disciplines

Business

Keywords

Composite equity issuance, International markets, Equity anomalies, The cross-section of stock returns, Return predictability

Indexed in Scopus

no

Open Access

no

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