Equity Market Timing Research Articles

Agency Implications of Equity Market Timing

Agency Implications of Equity Market Timing

Equity Market Timing and Capital Structure: Evidence from Tunisia and France

This paper investigates the relevance of market timing considerations on the debt-equity choice using a panelof tunisian and french listed firms. Consistent with the market timing theory, we find that firms tend to issueequity when their market valuations are relatively higher than their book values and after market performanceimprovement. As a consequence, these firms become underlevraged in the short-term and this impact of equitymarket timing on capital structure persists beyond eight years.

Equity Market Timing: Testando através dos IPOs no Mercado Brasileiro

O trabalho analisa se o comportamento relacionado a equity market timing afeta a oferta pública inicial de ações (IPOs) e estuda se este comportamento exerce um impacto na estrutura de capital das empresas usando dados de IPOs no mercado brasileiro no período de janeiro de 2004 até dezembro de 2007. Separando a amostra em diferentes períodos de acordo com o número de emissões realizadas, o trabalho confirma que as empresas adotam um comportamento oportunístico emitindo um volume maior de ações em períodos denominados como “quentes”. O trabalho também mostra que o resultado é robusto a explicações alternativas e que o impacto deste comportamento na estrutura de capital das empresas limita-se ao curto prazo. Embora haja uma significativa redução no nível da alavancagem das empresas logo após o IPO, os resultados apontam que este retorna quase aos níveis anteriores alguns trimestres após a emissão.

Performance Evaluation of Balanced Pension Plans

This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers’ skills in three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets.

Performance evaluation of balanced pension plans

This paper examines the ability of balanced pension plan managers to successfully time the equity and bond market and select the appropriate assets within these markets. In order to evaluate both market timing abilities in these balanced pension plans, we extend the traditional equity market timing models to also account for bond market timing. As far as we know, we are among the first to apply this multifactor timing model to investigate equity and bond market timing simultaneously. This performance evaluation has been conducted on two samples of Spanish balanced pension plans, one with Euro Zone and one with World investment focus. This allows us to decompose managers’ skills into three components: selectivity, equity market timing, and bond market timing. Our findings suggest that the average stock-picking ability of pension plans is positive. World schemes tend to have positive bond timing skills, while Euro Zone pension plans are on average not able to time equity or bond markets.

Market Timing und Finanzierungsentscheidungen: Unterscheidet sich Europa von den USA?

Market Timing und Finanzierungsentscheidungen: Unterscheidet sich Europa von den USA? Seit der Arbeit von Baker/Wurgler (2002) hat sich die Market-Timing-Theorie als alternative Kapitalstrukturtheorie etabliert. Sie impliziert, dass die Kapitalstruktur von Unternehmen das kumulierte Ergebnis von Versuchen des Equity Market Timing ist. Im Rahmen dieser Studie wird untersucht, inwiefern sich die Hypothesen des Market Timing für andere Kapitalmärkte als den US-amerikanischen verallgemeinern lassen. Es ist dabei zu vermuten, dass in einem europäischen Marktumfeld aufgrund anderer institutioneller Strukturen keine bzw. nur unwesentliche Market-Timing-Effekte auftreten. Übereinstimmend mit dieser Hypothese zeigen unsere Ergebnisse, dass sich Equity Market Timing für Unternehmen des DAX und Euro Stoxx 50 nicht nachweisen lässt. Unsere Ergebnisse scheinen hingegen in Einklang mit der dynamischen Pecking-Order-Theorie zu stehen. (JEL G32) Market Timing and Financing Decisions: Are there any Differences between Europe and the USA? After publication of the Baker/Wurgler study (2002) the Market Timing theory has established itself as an alternative capital structure theory. It implies that the capital market structure of an enterprise represents the accumulated result of Equity Market Timing attempts. Within the framework of this study, it has been examined to what extent it would be possible to generalize the Market Timing hypotheses so that they are also valid for capital markets other than those of the USA. With this in mind, it would be fair to assume that no – or just insignificant – Market Timing effects occur in a European market environment owing to different institutional structures. In line with this hypothesis, the results we have obtained demonstrate that Equity Market Timing cannot be proven to exist for DAX enterprises and for EURO Stoxx 50 companies. It rather appears that the results we have obtained are in conformity with the Dynamic Pecking Order theory.

Performance evaluation of Polish mutual fund managers

PurposeThe purpose of this paper is to empirically assess the investment performance of mutual fund managers who operate in the Polish market.Design/methodology/approachThe paper uses monthly mutual fund returns over the period 2000‐2007 to investigate the manager's selectivity and market timing skills. It analyzes three investment mutual fund investment categories: equity, balanced, and bond mutual funds. The paper investigates several performance evaluation models, and shows that the findings are robust with respect to the model choice.FindingsFor each of the three categories, equity, balanced, and bond funds, the paper positive, but insignificant selectivity skill of the mutual fund managers. No evidence is found of bond or equity market timing skills in the sample.Research limitations/implicationsSince not many mutual funds exist over a long period, the sample used is relatively small with 38 mutual funds, while in April 2007 more than 300 funds are listed in the Polish market.Practical implicationsPrivate investors in Poland are not worse off by investing in mutual funds compared to passive market indices. Based on this research, they should select mutual funds that focus on selectivity rather than market timing.Originality/valueThe research on mutual fund manager skill in emerging economies is scarce. In addition, little is known on the performance of balanced and bond mutual funds, even in developed mutual fund markets. This paper contributes by filling both these gaps in the academic literature.

Performance Evaluation of Polish Mutual Fund Managers

This study aims at evaluating the performance of mutual fund managers in one of the fastest growing financial markets in emerging Europe. We use well-known performance evaluation measures to investigate whether private investors in Poland have benefited from investing in mutual funds. Our analysis focuses on returns over the period 2000-2007 for three categories of mutual funds: (1) equity, (2), bond, and (3) balanced mutual funds. Our results indicate that mutual funds in each of these three categories have positive, but insignificant selectivity skill, indicating that a private investor would not have been worse of by investing in mutual funds. We do not find any evidence of equity or bond market timing skill by Polish mutual funds. This conclusion does not depend on our choice of evaluation model taking into account the direction and/or the magnitude of the market return.

The equity refinancing preference and market timing in Chinese listed firms

According to the sample data selected on the equity refinancing of the total market and the individual listed firms in China, we find that the total stock market refinancing amount has a significantly positive relationships with the Market-to-Book ratio (M/B) of stock market; and whether equity refinancing or not, as well as the proportion of equity refinancing are significantly negative related to the variation ratio of next annual M/B for individual listed firms. These results show that there exists the market timing choice of equity refinancing in Chinese listed firms, resulting a lower equity capital cost and the equity refinancing preference.

Do Firms Adjust Toward a Target Leverage Level?

This paper studies capital structure adjustment mechanisms of firms that experience substantial changes in leverage. Adjustments appear to be asymmetric among firms with large increases and those with large decreases in debt ratios. The different adjustments are not due to differences in leverage targets or industry distributions between the samples. Speeds of adjustment are found to be affected by market timing opportunities. The persistence of equity market timing opportunities slows some firms' rebalancing process.

Equity market timing and capital structure: International evidence

We investigate the equity market timing hypothesis of capital structure in major industrialized (G-7) countries. As claimed by its proponents, we find that leverage of firms is negatively related to the historical market-to-book ratio in all G-7 countries. However, this negative relationship cannot be attributed to equity market timing. We find no association between equity issues and market-to-book ratios at the time of equity financing decisions by Japanese firms. Firms in all G-7 countries, except Japan, undo the effect of equity issuance and the impact of equity market timing attempts on leverage is short lived. This is inconsistent with the prediction of the equity market timing hypothesis and more in line with dynamic trade-off model.

Are Observed Capital Structures Determined by Equity Market Timing?

AbstractContrary to Baker and Wurgler (2002), I find that the importance of historical average market-to-book ratios in leverage regressions is not due to past equity market timing. Although equity transactions may be timed to equity market conditions, they do not have significant long lasting effects on capital structure. Debt transactions exhibit timing patterns that are unlikely to induce a negative relation between market-to-book ratios and leverage. I also find that historical average market-to-book ratios have significant effects on current financing and investment decisions, implying that they contain information about growth opportunities not captured by current market-to-book ratios.

Disentangling the Effects of Stock Returns, Equity Market Timing and Firm Specific Characteristics on Capital Structure

Recent prior research has had contradicting findings as to whether it is equity market timing or stock returns which is the major determinant of capital structure. In this paper we make attempts to disentangle the effects of equity market timing practice from that of stock returns on UK firms’ capital structures in order to reach a verdict as to which one is the major determinant of capital structure. We document that although equity market timing practice has statistically significant effects on gearing, stock returns are the most important capital structure determinant. Further robustness tests show that although the effect of equity market timing and firm-specific characteristics such as profitability, growth opportunities, size, and non-debt tax shields, is persistent and statistically significant, compared to stock returns effect, their economic role is negligible. Stock returns drive gearing mechanistically for a long time, even for more than 10 years. The results also show that managers do not strive to adjust their capital structure towards some optimal debt ratio when their debt-carrying capacity increases. The findings imply that there is no optimal capital structure.

Are Observed Capital Structures Determined by Equity Market Timing?

Contrary to Baker and Wurgler (2002), we find that the importance of historical average market-to-book in leverage regressions is not due to past equity market timing. We find that only equity issues may be timed to conditions in equity market, but they do not have significant long-lasting effects on capital structure. Other transactions exhibit timing patterns that are unlikely to induce a negative relation between market-to-book and leverage. We also find that historical average market-to-book has a significant effect on current financing and investment decisions, implying that it contains information about growth opportunities not captured by current market-to-book.