FIN-04-021 |
NYU Stern School of Business |
September 2004
Malcolm Baker, Ryan Taliaferro and Jeffrey Wurgler
ABSTRACT
A number of studies claim that aggregate managerial decision variables, such as aggregate equity
issuance, have power to predict stock or bond market returns. Recent research argues that these
results may be driven by an aggregate time-series version of Schultz's (2003) pseudo market
timing bias. We use standard simulation techniques to estimate the size of the aggregate pseudo
market timing bias for a variety of predictive regressions based on managerial decision variables.
We find that the bias can explain only about one percent of the predictive power of the equity
share in new issues, and that it is also much too small to overturn prior inferences about the
predictive power of corporate investment plans, insider trading, dividend initiations, or the
maturity of corporate debt issues.
Malcolm Baker
Institution: Harvard Business School
Email: mbaker@hbs.edu
Ryan Taliaferro
Institution: Harvard Business School
Email: rtaliaferro@hbs.edu
Jeffrey Wurgler
Institution: Stern School of Business, New York University
Email: jwurgler@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~jwurgler
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