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Net equity issuance effect in the UK

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  • Hang Zhou
  • Seth Armitage
  • Maria Michou

Abstract

Net equity issuance (NEI) by firms has predictive power for US stock returns. This paper examines the NEI anomaly for UK stocks, using regression on firm characteristics and sorted portfolios with several factor models. The anomaly generalises to the UK only in part. We confirm the existence of a large NEI effect for small and midsize stocks, but not for large stocks. The repurchase effect, of positive abnormal returns following repurchases, is absent in the UK. We also find that the NEI effect in smaller stocks is not exploitable by investors, allowing for transaction costs.

Suggested Citation

  • Hang Zhou & Seth Armitage & Maria Michou, 2019. "Net equity issuance effect in the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 25(15), pages 1420-1439, October.
    • Handle: RePEc:taf:eurjfi:v:25:y:2019:i:15:p:1420-1439
    DOI: 10.1080/1351847X.2019.1601119
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    Cited by:

    1. Long, Huaigang & Chiah, Mardy & Zaremba, Adam & Umar, Zaghum, 2024. "Changes in shares outstanding and country stock returns around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 90(C).
    2. Yu, Huaibing, 2024. "Why isn't composite equity issuance favored by the stock market? A risk-based explanation for the anomaly," International Review of Financial Analysis, Elsevier, vol. 94(C).

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