Can Managers Forecast Aggregate Market
Returns?, with Alex Butler and Gustavo Grullon, Journal of Finance (April 2005),
963-986.
Abstract
Previous studies
have found that the proportion of equity in total new debt and equity issues
is negatively correlated with future equity market returns. Researchers have
interpreted this finding as evidence that corporate managers are able to
predict the systematic component of their stock returns and to issue equity
when the market is overvalued. In this paper we show that the predictive
power of the share of equity in total new issues stems from pseudo market
timing and not from any abnormal ability of managers to time the equity
markets.