The new issues puzzle: evidence from non-US firms

Abstract

For non-US stocks of firms in the G7 countries, we empirically test the new issues puzzle – stocks of firms that issue new equity are, on average, very poor investments relative to various benchmarks – by market capitalization. Only for the United Kingdom do we find evidence for a significantly negative relation between net share issues and expected returns for larger capitalization stocks. There is some evidence for Japanese stocks. For the other four countries, a positive relation between net share issues and expected returns is observed.

Keywords:

• new issues puzzle
• net share issues
• market capitalization
• equity returns

JEL Classification:

• G10
• G15
• G30