TY  - JOUR
AU  - Li,Erica X. N.
AU  - Livdan,Dmitry
AU  - Zhang,Lu
TI  - Optimal Market Timing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12014
PY  - 2006
Y2  - February 2006
UR  - http://www.nber.org/papers/w12014
L1  - http://www.nber.org/papers/w12014.pdf
N1  - Author contact info:
Erica X.N. Li
University of Michigan
701 Tappan Street
Ann Arbor, MI 48109
Tel: 7349363248
E-Mail: xuenanli@bus.umich.edu

Dmitry Livdan
Haas School of Business
UC, Berkeley
545 Student Services #1900
Berkeley, CA
94720-1900
E-Mail: livdan@haas.berkeley.edu

Lu Zhang
Fisher College of Business
The Ohio State University
2100 Neil Avenue
Columbus, OH 43210
Tel: 585-267-6250
E-Mail: zhanglu@fisher.osu.edu
AB  - We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance; the negative relation between aggregate equity share and future stock market returns; long-term underperformance following equity issuance and the positive relation of its magnitude with the volume of issuance; the mean-reverting behavior in the operating performance of issuing firms; and the positive long-term stock price drift of firms distributing cash and its positive relation with book-to-market. We conclude that systematic mispricing seems unnecessary to generate the return-related evidence often interpreted as behavioral underreaction to market timing.
ER  -