Hirshleifer, David and Jiang, Danling (2007): Commonality in Misvaluation, Equity Financing, and the Cross Section of Stock Returns.
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Behavioral theories suggest that investor misperceptions and market mispricing will be correlated across firms. This paper uses equity financing to identify comovement in returns and commonality in misvaluation. A zero-investment portfolio (UMO, Undervalued Minus Overvalued) built from repurchase and new issue stocks captures excess comovement in general stock returns relative to a set of multi-factor models. Adding UMO to the 3-factors makes the alphas insignificant for portfolios with extreme size and book-to-market, or based on M&A, convertible bond issuance, and dividend initiation, resumption, and omission. The loadings on UMO incrementally predict the cross-section of returns on portfolios as well as individual stocks. Further evidence is consistent with the UMO loading proxying for the common component of a stock's misvaluation.
|Item Type:||MPRA Paper|
|Original Title:||Commonality in Misvaluation, Equity Financing, and the Cross Section of Stock Returns|
|Keywords:||Comovement, equity financing, new issue, repurchase, systematic mispricing, return predictability|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
|Depositing User:||Danling Jiang|
|Date Deposited:||10. Jul 2009 00:42|
|Last Modified:||06. Mar 2015 14:28|
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