Heterogeneous Beliefs and Return Volatility Around Seasoned Equity Offerings (SEOs)

60 Pages Posted: 28 Feb 2017 Last revised: 22 Jan 2018

See all articles by Ann Marie Hibbert

Ann Marie Hibbert

West Virginia University

Qiang Kang

Florida International University (FIU) - Department of Finance

Alok Kumar

University of Miami - School of Business Administration

Suchi Mishra

Florida International University (FIU) - Department of Finance

Date Written: January 18, 2018

Abstract

This study provides an explanation for the volatility timing “puzzle” identified in the Seasoned Equity Offering (SEO) market. Our key conjecture is that the volatility dynamics around seasoned equity issuance reflects the time-varying heterogeneous beliefs of investors about the future prospects of the issuing firm. Consistent with this conjecture, we find that the heterogeneous beliefs of investors, as proxied by analyst forecast dispersion, is a significant determinant of SEO firm volatility around the event window. We obtain similar results using a more direct trade-based belief measure constructed using actual institutional trades. Further, the relation between heterogeneous beliefs and firm volatility weakens as the short selling constraints become binding, which suggests a potential causal link between heterogeneous beliefs and return volatility.

Keywords: Return Volatility; SEOs; Analyst Forecast Dispersion; Trade-based Heterogeneity in Beliefs; Optimism; Pessimism; Short Selling

JEL Classification: G10; G12; G14

Suggested Citation

Hibbert, Ann Marie and Kang, Qiang and Kumar, Alok and Mishra, Suchismita, Heterogeneous Beliefs and Return Volatility Around Seasoned Equity Offerings (SEOs) (January 18, 2018). Available at SSRN: https://ssrn.com/abstract=2924041 or http://dx.doi.org/10.2139/ssrn.2924041

Ann Marie Hibbert

West Virginia University ( email )

Morgantown, WV 26506
United States

Qiang Kang

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Alok Kumar (Contact Author)

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Suchismita Mishra

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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