The share of equity issues in total new equity and debt issues is a strong predictor of U.S. stock market returns between 1928 and 1997. In particular, firms issue relatively more equity than debt just before periods of low market returns. The equity share in new issues has stable predictive...

It is well known that firms tend to raise equity when their market values are high relative to book and past market values. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to past market valuations....

In textbook theory, demand curves for stocks are kept flat by riskless arbitrage between perfect substitutes. In reality, however, individual stocks do not have perfect substitutes. The risk inherent in arbitrage between imperfect substitutes may deter risk-averse arbitrageurs from flattening...

Financial markets appear to improve the allocation of capital--across 65 countries, those with developed financial markets increase investment more in growing industries, and decrease investment more in declining industries, than financially undeveloped countries. The efficiency of capital...