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An Investigation of Market Microstructure Impacts on Event Study ReturnsRonald C. LeasePurdue University - Krannert School of Management; National Bureau of Economic Research (NBER) Ronald W. MasulisUniversity of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN) John PageTulane University - Accounting & Taxation Journal of Finance, Vol. 46, No. 4, pp. 1523-1536, 1991 Abstract: We investigate the importance of bid-ask spread induced biases on event date returns as exemplified by seasoned equity offerings by NYSE listed firms. We document significant negative return biases on the offering day which explain a large portion of the negative event date return documented in the literature. Buy/sell order flow imbalance is prominent around the offering and induces a relatively large spread bias. If order imbalances are suspected, the researcher can use returns calculated from the midpoint of the closing bid and ask quotes, instead of returns calculated from closing transaction prices, to avoid this return bias.
Number of Pages in PDF File: 23 Keywords: Seasoned equity offering, market microstructure, bid-ask bounce, order flow imbalance JEL Classification: G14, G24, G32 Accepted Paper SeriesDate posted: May 8, 2006Suggested CitationContact Information
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