Equity-heavy new issues predict market downturns, challenging efficient market theory.
The amount of new stocks companies issue compared to debt can predict how the stock market will perform. When companies issue more stocks than debt, the market tends to have lower returns. This pattern has been consistent from 1928 to 1997, showing that companies may be timing the market when they issue securities. This suggests that the stock market is not always efficient and that companies may be taking advantage of market trends when raising funds.