Share issuance and equity returns in the Istanbul stock exchange

Abstract

This paper investigates the predictive power of share issuance on equity returns in the Istanbul Stock Exchange (ISE). The share issuance measure is estimated as the annual logarithmic change in shares outstanding adjusted for distribution events. This measure is not significantly related to expected equity returns in a univariate setting; however, this is due to the prevalence of rights offerings in the ISE and the consequent mechanical relation between the issuance measure and the book-to-market effect. After controlling for book-to-market, size and momentum factors, there is a significantly negative relation between share issuance and expected returns, especially for longer return horizons. The results from the portfolio analysis confirm this finding and show that the portion of share issuance that cannot be explained by the book-to-market effect has a strong negative cross-sectional relation with expected equity returns in the ISE between 1992 and 2011.