Equity Market Timing Research Articles

The Impact of Equity Market Timing on Firm Value: A Behavioral Approach

The Impact of Equity Market Timing on Firm Value: A Behavioral Approach

Do the Israeli Provident Funds have the Ability to Time the Bond and Stock Markets? An Analysis across Alternative Investments

This paper investigates whether Israeli fund managers possess market-timing ability across asset classes over time, using 15 years of monthly data from the Israeli provident funds. We apply three methodologies based on return based and portfolio holdings approaches. Most of the early return-based timing methods and the most recent portfolio holdings measures suggest that U.S. mutual fund managers do not possess equity timing ability. Our study is the first to test this evidence on multi- asset class provident funds in the Israeli market and compare the timing ability of fund managers in each asset class according to different approaches. We introduce an alternative holdings method that combine the asset allocation theory with that of market timing and use "excess policy" holdings data to predict future market returns. In addition, previous studies mostly ignore the contribution of other instruments to timing decisions, which may cause any conclusions about managers' timing decisions to be incomplete. Hence, we test equity market timing with respect to all markets using a multiple market index model in the holdings approach. In line with previous research, our empirical results indicate significantly negative market timing in domestic equities according to all the measures used. On the other hand, provident fund managers on average seem to display some timing ability for government bonds.

Equity Supply and Equity Market Timing on Capital Structure

We find that the changes to individual securities accounts, which denote an equity supply condition variable, is a new and effective equity market timing measure in China. This timing measure can avoid previous criticisms of timing measure for not being independent of firm characteristics of capital structure. Regarding the debate about whether equity market timing has a persistent effect on capital structure, our empirical results show that there are more than 7 years of a persistent effect of equity market timing on firm leverage, thus supporting the equity market timing theory. Moreover, we offer evidence that the persistent timing effect on capital structure is driven by the market conditions of equity supply and equity supply conditions play an important role in corporate financial decisions.

Equity Market Timing dan Struktur Modal

This study is an empirical testing of equity market timing and capital structure at firms which are doing IPO 2001 and 2002. The aims of this study are to test about the effect of equity market timing to capital structure and to test the persistency of the effect of equity market timing to firm’s capital structure in Indonesia. This study also used control variable, that asset tangibility, size and profitability. To analyze the data, this study used multiple regressions with SPSS 16.0 to test independent and dependent variables. The result suggest that the equity market timing has not significantly negative effect to the firms’ capital structure which used IPO 2001 and 2002 that are listed in BEI, and the effect of equity market timing to the firms’ capital structure are not persistent that the negative effect of equity market timing to the firms’ capital structure disappear within third years after IPO.

Market Timing of New Equity Offerings: Evidence from Chinese Listed Firms

A well-established paradigm of the developed financial market is that firms take advantage of market valuations to make financial decisions. Do firms operating in a highly controlled market follow similar financial strategies? We find that the new equity offerings of Chinese listed firms are strongly associated with market valuations. However, the market timing effectiveness is relatively lower in the firms owned by the State and in the time when firms conduct non-tradable share reform by liquidating non-tradable shares. We also find that the proceeds from equity offerings are expended more in the form of opportunistic and discretionary usage than investment requirements. Our empirical evidence supports the general applicability of the equity market timing theory to the highly controlled emerging market of China.

Is Equity Market Timing the Sole Criteria for Capital Structure Decisions? An Insight from Indian Firms

Work done on capital structure mainly focuses on developed economies and only few studies have been conducted for developing economies, especially for India. The present study is the first one which explores the validity of equity market timing for the Indian market. The paper tried to overcome the limitations of previous studies by capturing the individual year effect and by categorizing the firms into three sectors of the economyprimary, secondary, and tertiary. The present study broke the myth about the capital structure decisions, in which it is believed that market timing plays a dominant role, while all other variables are not considered as important as market timing. The period of the study ranges from the year 1992-2011 and the findings revealed that Indian firms have started relying more on their internal firm level characteristics like profitability rather than on market timing for their capital structure decisions. The results were similar when the firms were classified into three sectors, even though the effect of equity market timing was more pronounced for secondary sector firms as compared to the primary and tertiary sector firms. Therefore, the decision-makers should focus on strengthening the firm level characteristics (like profitability) rather than relying solely on equity market timing.

Is Equity Market Timing the Sole Criteria for Capital Structure Decisions? An Insight from Indian Firms

Is Equity Market Timing the Sole Criteria for Capital Structure Decisions? An Insight from Indian Firms

PESQUISAS INTERNACIONAIS RECENTES EM ESTRUTURA DE CAPITAL

A estrutura de capital ainda é um dos temas controversos em finanças corporativas e ainda propicia muitas pesquisas tanto nas teorias já amplamente discutidas como também nos diversos inter-relacionamentos com outros aspectos corporativos. O objetivo deste artigo foi de fazer uma revisão das publicações recentes que envolvam estudos sobre a estrutura de capital das empresas. A pesquisa foi focada nos últimos 3 anos, de 2011 a 2013, e nas revistas acadêmicas internacionais na área de finanças que apresentam os maiores fatores de impacto, a saber: The Review of Financial Studies, The Journal of Finance, Journal of Financial Economics e Journal of Banking & Finance. Apesar de amplamente discutidas, as diferenças entre as principais teorias sobre a estrutura de capital, a teoria do trade-off e a teoria do pecking order, ainda são pesquisadas – entretanto, talvez por ser mais recente, a teoria do equity market timing é o que mais tem sido analisado nos últimos três anos. Além desses tópicos, os pesquisadores têm tratado de muitos aspectos das variáveis corporativas que direta ou indiretamente estão associados com as decisões de estrutura de capital. Este trabalho apresenta um sumário sucinto das diversas publicações permitindo uma visão geral das pesquisas.

Equity Market Timing and Capital Structure: Evidence from Korea

Equity Market Timing and Capital Structure: Evidence from Korea

IPO Market Timing and Capital Structure: Evidences from Brazil

This article examines the occurrence of equity market timing through its effects on the capital structure of Brazilian companies that went public between 1997 and 2007. The results show the existence of equity market timing in the Brazilian stock market but its effects are not persistent in the long-run on the capital structure.

The Use of Correlation Networks in Parametric Portfolio Policies

Correlation networks reveal a rich picture of market risk structure dynamics. A rather compact and well-organized sector correlation network is indicative of a healthy market, whereas a widely spread sector correlation network characterizes a more fragile market environment. Intuitively, some characteristics of the correlation network can serve as natural measures of systemic risk. Pursuing an equity market timing strategy we document the predictive content of these measures to translate into a meaningful portfolio utility. Moreover, this result continues to hold when controlling for common predictors of the equity risk premium. Not only can correlation networks be useful as an aggregate market timing signal but also in navigating the cross-section of equity sectors. We especially document a significant outperformance of peripheral versus central equity sectors that cannot be explained by momentum or low volatility effects. Finally, we implement a parametric portfolio policy that comprises the complete information content of the sector network topology conditional on a given level of risk aversion.

Does market timing persistently affect capital structure? Evidence from stock market liberalization

Utilizing stock-market liberalization, we test whether managers exploit favorable market conditions to time their firms' IPOs, and whether or not the timing will have a persistent, negative impact on leverage. Using a sample of 235 Taiwanese IPOs over the 10-year period surrounding the first liberalization in the Taiwan stock market, a high-volatility, high-turnover, high-individual-trading emerging market, we first show that liberalization substantially reduces the cost-of-equity capital. We then provide evidence that the going-public decision for post-liberalization IPOs is consistent with equity market timing, but that it fails to influence the debt ratio.

The Impact of Insider Ownership Level on Equity Market Timing Decisions

Equity market timing refers to the issuance of equity when a firm’s stock is overvalued. Despite such efforts resulting in these firms significantly underperforming in the long run, managers are assumed to be acting in the best interests of current shareholders. Agency theory and current events clearly show that managers do not always act in the shareholders’ interest. Therefore it is imperative that this issue of shareholder benefit be further investigated. This paper attempts to overcome the hurdle of superior insider information, and determine if shareholders do indeed benefit. We use Logit and Probit models to evaluate the propensity of managers to issue new equity conditioned upon the degree of alignment (as measured by managers’ equity ownership) of their interests with those of shareholders. Specifically, how does the likelihood of equity market timing change in relation to the level of insider ownership? Our results indicate that the probability of issue increases with managerial holdings of common stock. Managers are acting for shareholder benefit, since they are more likely to issue equity when they themselves are heavily invested in the firm’s common stock.

Agency Implications of Equity Market Timing

Firms commonly transact in their own mispriced stock using private information. We challenge the view that this activity, known as equity market timing, benefits shareholders. By distinguishing the effect of a firm’s equity decisions from the effect of mispricing itself, we show that market timing can decrease expected shareholder wealth and welfare. Further, market timing has a more negative effect on existing shareholders when the share turnover is high. The effect of timing is asymmetric: shareholders prefer that the firm corrects underpricing rather than overpricing. Our theory can be used to infer firms’ maximization objectives from their observed market timing strategies.

Agency Implications of Equity Market Timing

We develop a rational expectations model to examine the conflicts of interest between different groups of shareholders in firms' market timing decisions. We show that current shareholders benefit from share repurchase timing, whereas future shareholders prefer issuance timing. Using a new empirical measure that captures the additional returns to shareholders from equity sales and stock repurchases, we document that managers of large firms time the market primarily through stock repurchases and are rewarded with higher compensation when they beat the market. In contrast, managers of small firms appear to cater more to future shareholders in their market timing decisions.

Agency Implications of Equity Market Timing

Agency Implications of Equity Market Timing

Capital structure and financing decision - Evidence from the four Asian Tigers and Japan

This paper examines the relative importance of the Modigliani-Miller theorem, the trade-off theory, the pecking order theory and the market timing theory in the financing decisions of the firms for the Four Asian Tigers (Hong Kong, Korea, Singapore and Taiwan) and Japan. According to our findings, although several elements impact on capital structure temporarily, firms from all countries rebalance their leverage following equity issuances. The results are more in line with the dynamic trade-off theory rather than the equity market timing or pecking order hypothesis of capital structure. In other words, firms have their target capital structures, determined by the marginal benefits of debt and costs associated with debt. Therefore, this implies that firms adjust their capital structure in response to the temporary shocks that cause their leverage to deviate from the target in the Four Asian Tigers and Japan. This outcome would be consistent with the previous empirical evidences of the US and the other of the Group of Seven (G7). Key words: Capital structure, trade-off theory, market timing hypothesis, pecking order theory.

Do Bank Lines of Credit Allow More Equity Market Timing?

Do Bank Lines of Credit Allow More Equity Market Timing?

The Impact of Insider Ownership Level on Equity Market Timing Decisions

The Impact of Insider Ownership Level on Equity Market Timing Decisions

Agency Implications of Equity Market Timing

Agency Implications of Equity Market Timing