Thursday 7 May 2026 1:00pm to 2:00pm
Cambridge Judge Business School W2.02
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Abstract:
Different risk spans make stocks imperfect substitutes, creating scope for firms, as the sole suppliers of their own securities, to influence prices through strategic supply adjustments. We document evidence supporting this mechanism. Decomposing expected returns into unique (not spanned by other stocks) and spanned components, we show that issuance and repurchase decisions respond more strongly to unique than to spanned returns, and that repurchases driven by unique returns are followed by larger declines in expected returns than those driven by spanned returns. At the aggregate level, net repurchases driven by unique returns are positively related to characteristics-based factor returns, whereas net repurchases driven by spanned returns are negatively related to them. We show that, taken together, these patterns are consistent with firms behaving strategically under imperfect competition in risk space.