Abstract

http://ssrn.com/abstract=302462
 
 

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Long-Run Seasoned Equity Offering Returns: Data Snooping, Model Misspecification, or Mispricing? A Costly Arbitrage Approach


Jeffrey Pontiff


Boston College - Department of Finance

Michael J. Schill


University of Virginia – Darden Graduate School of Business Administration

October 2001


Abstract:     
This paper uses a new approach to assess return behavior after seasoned equity offerings. Our approach recognizes that sophisticated investors are motivated to correct mispricing, although the magnitude of their activity is influenced by arbitrage costs. This approach avoids inference problems due to model misspecification or data snooping. The evidence supports the contention that firms that conduct seasoned equity offerings are overpriced. Our findings imply that, since mispricing associated with seasoned equity offerings is persistent in the long-run, holding costs play an important role although transaction costs do not. In fact, holding costs dominate the size effect documented by previous research.

Number of Pages in PDF File: 34

Keywords: Seaoned equity offerings, arbitrage costs

JEL Classification: G32

working papers series


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Date posted: July 10, 2002  

Suggested Citation

Pontiff, Jeffrey and Schill, Michael J., Long-Run Seasoned Equity Offering Returns: Data Snooping, Model Misspecification, or Mispricing? A Costly Arbitrage Approach (October 2001). Available at SSRN: http://ssrn.com/abstract=302462 or http://dx.doi.org/10.2139/ssrn.302462

Contact Information

Jeffrey E. Pontiff
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
Michael J. Schill (Contact Author)
University of Virginia – Darden Graduate School of Business Administration ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4071 (Phone)
434-243-7676 (Fax)
HOME PAGE: http://www.darden.virginia.edu/faculty/schill.htm
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