Predicting Returns with Managerial Decision Variables: Is There a Small-Sample Bias?





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    • Baker is at the Harvard Business School and the National Bureau of Economic Research; Taliaferro is at the Harvard Business School; and Wurgler is at the NYU Stern School of Business and the National Bureau of Economic Research. We thank Yakov Amihud, John Campbell, Owen Lamont, Alex Ljungqvist, Tim Loughran, Stefan Nagel, Jay Ritter, Andrei Shleifer, Rob Stambaugh, Jeremy Stein, Jim Stock, Sam Thompson, Tuomo Vuolteenaho, and two anonymous referees for helpful comments, and Owen Lamont, Inmoo Lee, and Nejat Seyhun for data. Baker gratefully acknowledges financial support from the Division of Research of the Harvard Business School.


Many studies find that aggregate managerial decision variables, such as aggregate equity issuance, predict stock or bond market returns. Recent research argues that these findings may be driven by an aggregate time-series version of Schultz's (2003, Journal of Finance 58, 483–517) pseudo market-timing bias. Using standard simulation techniques, we find that the bias is much too small to account for the observed predictive power of the equity share in new issues, corporate investment plans, insider trading, dividend initiations, or the maturity of corporate debt issues.