Equity issues and aggregate market returns under information asymmetry

We propose a simple time-series model based on information asymmetry that allows us to test the predictive power of equity and debt issues with respect to future market returns. Using this method, we find that managers new equity and debt issue decisions have predictive power for future market returns, when we take into account potential feedback from past market returns and structural breaks. We also take into account a cointegration relation among stock prices, equity issues and debt issues. This finding is robust with respect to various measures of market returns and consistent with the managerial timing hypothesis.