Price informativeness and stock return synchronicity : Evidence from the pricing of seasoned equity offerings

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

94 Scopus Citations
View graph of relations

Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)36-53
Journal / PublicationJournal of Financial Economics
Volume114
Issue number1
Publication statusPublished - 2014
Externally publishedYes

Abstract

We investigate what stock return synchronicity reflects in terms of price informativeness by examining its effect on the pricing of seasoned equity offerings (SEOs). Based on 5,087 SEOs from 1984 to 2007, we find a significantly negative relation between stock return synchronicity (estimated as the logit transformation of the R-squared statistic from a two-factor regression) and SEO discounts (the percentage differences between pre-offer day closing prices and offer prices). The negative relation is strongest when there is no analyst coverage, and it declines as analyst coverage increases. This shows that stock price is more informative when stock return synchronicity is higher and also that information asymmetry can be mitigated by analyst coverage. We further decompose stock return synchronicity into the market comovement and industry comovement components and find that both components are equally important in affecting SEO discounts. © 2014 Elsevier B.V.

Research Area(s)

  • Price informativeness, Seasoned equity offerings, Stock return synchronicity

Bibliographic Note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to lbscholars@cityu.edu.hk.