Equity Issues, Market Timing, and Limits to Arbitrage

59 Pages Posted: 25 Mar 2008

See all articles by Borja Larrain

Borja Larrain

Pontificia Universidad Catolica de Chile

Date Written: March 18, 2008


We study equity issues when the capacity of the market to absorb risk is limited and time-varying. The model can replicate the dynamics of prices and equity issues observed at the aggregate level. Firms issue equity at high prices and low market returns follow active issuance. In the cross-section, the model predicts that firms with more arbitrage risk are less likely to issue equity. We find empirically that firms with stocks that are harder to arbitrage-stocks with bad substitutes-are less likely to issue equity, issue less equity as fraction of their assets, and have higher leverage.

Keywords: Equity issues, market timing, limits to arbitrage

JEL Classification: G32

Suggested Citation

Larrain, Borja, Equity Issues, Market Timing, and Limits to Arbitrage (March 18, 2008). Available at SSRN: https://ssrn.com/abstract=1108008 or http://dx.doi.org/10.2139/ssrn.1108008

Borja Larrain (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

Ave. Vicuna Mackenna 4860, Macul

HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics