Managerial market timing: What is the pot size for long-term shareholders assuming firm management acts in their best interest and does have an informational advantage?

Jan Vogt

Global Finance Journal, 2021, vol. 49, issue C

Abstract: Using a stochastic model, this paper quantifies the potential value gain, for a diversified long-term shareholder, from market timing by trustworthy managers with superior information. If firms have flexibility and can issue or buy back shares up to 10% of their market capitalization, perfect market timing can yield an annualized average value gain between 0.07% (in a fair low-opportunity market) and 7.51% (in a fair high-opportunity market). With an error rate of 25%, the annual gains amount to −0.01% and 3.51%. Flexibility and management skill are key: long-term investors should grant limited flexibility to firm managers, and managers should avoid too prompt exploitation of opportunities due to price pressure effects.

Keywords: Market timing; Capital structure; Valuation; Share issuance; Share buybacks (search for similar items in EconPapers)
JEL-codes: G12 G14 G30 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028320302830
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:49:y:2021:i:c:s1044028320302830

DOI: 10.1016/j.gfj.2020.100583

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().