Shares Outstanding and Cross-Sectional Returns

We examine the cross-sectional relation between the twelve-month real change in shares outstanding and stock returns. During the post-1970 time period, change in shares outstanding exhibits a strong cross-sectional ability to predict stock returns. This predictive ability is typically stronger than the predictive ability of size, book-to-market, or momentum. Our finding is related to research that finds that long-run returns are associated with share repurchase announcements and seasoned equity offerings, although our finding is not attributed to this association. We also provide novel estimation of the share change relation in the pre-1970 time period and find no statistically significant predictive ability. * We thank participants at the Boston College brown bag workshop for useful comments.