A theory that firms time the market by issuing stock when their stock prices are high and repurchasing shares when their stock values are low.
A) Rational decision maker hypothesis
B) Static trade-off hypothesis
C) Pecking order hypothesis
D) Market timing hypothesis

Question

Quizplus · Accepted Answer

The theory described in the question is known as the market timing hypothesis. It suggests that firms attempt to time the market by issuing stock when their stock prices are high (in order to take advantage of favorable market conditions) and repurchasing shares when their stock values are low (in order to support the stock price and signal positive news to investors). The other three choices (A, B, and C) are hypotheses related to corporate financing decisions, but do not specifically address market timing behavior.

A Theory That Firms Time the Market by Issuing Stock