Order Imbalances Around Seasoned Equity Offerings

65 Pages Posted: 24 Sep 2011 Last revised: 8 Oct 2012

See all articles by Sukwon Thomas Kim

Sukwon Thomas Kim

Independent

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Date Written: July 31, 2012

Abstract

Using market microstructure data, we study the determinants of the buying/selling pattern around seasoned equity offerings (SEOs) and their effect on underpricing. We find that the trading pattern around SEOs is slightly positive before the issue date and heavily negative after the SEO, and this pattern is distinctly different from what has been inferred from stock returns. The large negative order imbalances mostly occurred during the late 90s in NASDAQ market, where 86% of underwriters are also market makers and market depth is shallow. The abnormal order imbalances appear to be the result of underwriter market making activities. We also find that SEO underpricing is correlated with the post-issue-date negative order imbalances. The selling pressure on stock returns is estimated as 20% of SEO underpricing, indicating a significant portion of SEO underpricing is related to market making risk.

Keywords: Seasoned Equity Offerings, Order Imbalances, Underpricing

JEL Classification: G14, G24, G32

Suggested Citation

Kim, Sukwon and Masulis, Ronald W., Order Imbalances Around Seasoned Equity Offerings (July 31, 2012). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1932401 or http://dx.doi.org/10.2139/ssrn.1932401

Sukwon Kim (Contact Author)

Independent

No Address Available
United States

Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
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Australia
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European Corporate Governance Institute (ECGI) ( email )

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Belgium

Financial Research Network (FIRN)

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Australia

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National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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