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Share Issuance and Factor Timing

Authors

  • ROBIN GREENWOOD,

  • SAMUEL G. HANSON

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    • Greenwood is at Harvard Business School and the National Bureau of Economic Research (NBER) and Hanson is at Harvard Business School. This paper was previously circulated under the titles “Catering to Characteristics” and “Characteristic Timing.” We are grateful to Malcolm Baker; John Campbell; Sergey Chernenko; Lauren Cohen; Ben Esty; Campbell Harvey (the Editor); Borja Larrain; Owen Lamont; Jon Lewellen; Jeff Pontiff; Huntley Schaller; Andrei Shleifer; Erik Stafford; Jeremy Stein; Adi Sunderam; Ivo Welch; Jeff Wurgler; an anonymous referee and Associate Editor; and seminar participants at Harvard, INSEAD, HEC, AllianceBernstein, the University of Michigan, the NBER Behavioral Working Group, and the Q-Group for helpful suggestions. The Division of Research at the Harvard Business School provided funding.


ABSTRACT

We show that characteristics of stock issuers can be used to forecast important common factors in stocks' returns such as those associated with book-to-market, size, and industry. Specifically, we use differences between the attributes of stock issuers and repurchasers to forecast characteristic-related factor returns. For example, we show that large firms underperform after years when issuing firms are large relative to repurchasing firms. While our strongest results are for portfolios based on book-to-market (i.e., HML), size (i.e., SMB), and industry, our approach is also useful for forecasting factor returns associated with distress, payout policy, and profitability.

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