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

34 Pages Posted: 10 Jul 2002

See all articles by Jeffrey Pontiff

Jeffrey Pontiff

Boston College - Department of Finance

Michael J. Schill

University of Virginia - Darden School of Business

Date Written: 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.

Keywords: Seaoned equity offerings, arbitrage costs

JEL Classification: G32

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: https://ssrn.com/abstract=302462 or http://dx.doi.org/10.2139/ssrn.302462

Jeffrey 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 School of Business ( 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