Project Management

Characteristic Timing

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Executive Summary

The authors use differences between the attributes of stock issuers and repurchases to forecast characteristic-related stock returns. For example, they show that large firms underperform following years when issuing firms are large relative to repurchasing firms. The approach is useful for forecasting returns to portfolios based on book-to-market (HML), size (SMB), price, distress, payout policy, profitability, and industry. They consider interpretations of these results based on both time-varying risk premier and mispricing. The results are primarily consistent with the view that firms issue and repurchase shares to exploit time-varying characteristic mispricing.

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