Corporate Security Issues and Asset Returns

Abstract

Aggregate public corporate security issues forecast excess returns on stocks, government bonds and corporate bonds. A high ratio of aggregate short term to aggregate long term debt issues and a low ratio of aggregate equity to aggregate debt issues forecasts high excess returns at frequencies ranging from one month to six months. These variables have predictive power above and beyond variables previously used to predict asset returns. Our results are consistent with several (rational) equilibrium models that relate security issue choice with macroeconomic conditions.