Pseudo Market Timing and Predictive Regressions
37 Pages Posted: 3 Nov 2008
There are 5 versions of this paper
Predicting Returns with Managerial Decisions Variables: Is There a Small-Sample Bias?
Pseudo Market Timing and Predictive Regressions
Pseudo Market Timing and Predictive Regressions
Predictive Regressions Based on Managerial Decision Variables: Is There a Small-Sample Bias?
Predicting Returns with Managerial Decision Variables: Is There a Small-Sample Bias?
Date Written: September 2004
Abstract
A number of studies claim that aggregate managerial decision variables, such as aggregate equity issuance, have power to predict stock or bond market returns. Recent research argues that these results may be driven by an aggregate time-series version of Schultz s (2003) pseudo market timing bias. We use standard simulation techniques to estimate the size of the aggregate pseudomarket timing bias for a variety of predictive regressions based on managerial decision variables. We find that the bias can explain only about one percent of the predictive power of the equity share in new issues, and that it is also much too small to overturn prior inferences about thepredictive power of corporate investment plans, insider trading, dividend initiations, or the maturity of corporate debt issues.
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