A measurement error in beta that arises from changes in leverage during the beta estimation window contributes in explaining the size effect. Simulations of asset returns show that the magnitude of the bias in equity returns is proportional to the stock market-induced changes in leverage. We...

We investigate the financing strategies and valuation effects of 247 IPO firms at the "Neuer Markt" in Germany that either issued additional equity (SEO) or repurchased shares (SRP) within five years after going public. IPOs issuing additional equity exhibit a temporary outperformance before the...

This paper documents that the size effect (Banz, 1981) and the contrarian effect (DeBondt and Thaler, 1985) can be explained by a measurement error in beta. This measurement error results from a change in financial leverage during the beta estimation window. Based on simulations of asset...