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Corporate Events, Trading Activity, and the Estimation of Systematic Risk: Evidence From Equity Offerings and Share Repurchases

Authors

  • DAVID J. DENIS,

  • GREGORY B. KADLEC

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    • Both authors are from Virginia Polytechnic Institute and State University. We thank Chris Barry, Diane Denis, Rob Hansen, Raman Kumar, Ron Masulis, Doug Patterson, Dennis Sheehan, Vijay Singal, René Stulz (the editor), and an anonymous referee for helpful comments. This work has been partially supported by a summer research grant to the second author from the R. B. Pamplin College of Business at Virginia Polytechnic and State University.

ABSTRACT

We investigate the relation between trading activity, the measurement of security returns, and the evolution of security prices by examining estimates of systematic risk surrounding equity offerings and share repurchases. In contrast to prior studies, we find no evidence of changes in systematic risk following either equity offerings or share repurchases after correcting for biases caused by infrequent trading and price adjustment delays. Moreover, changes in ordinary least squares beta estimates are significantly related to contemporaneous changes in trading activity. Our results have implications for studies interested in the properties of security returns, particularly those examining periods in which trading activity changes.

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