Order Flow Patterns Around Seasoned Equity Offerings and Their Implications for Stock Price Movements

52 Pages Posted: 4 Jan 2005

See all articles by Sahn-Wook Huh

Sahn-Wook Huh

State University of New York (SUNY) - Department of Finance

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

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Abstract

In this study, we employ order imbalance measures to provide evidence that there exists an individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The normally positive relation between imbalances and returns disappears for trade number imbalances but remains intact for dollar imbalances following SEOs. Further analysis supports the notion that small, possibly naive, individual investors keep buying SEO stocks actively while the returns of these stocks reverse in the post-issue period. It seems to take more than two years for small individual investors to adequately revise their overoptimistic views. Consequently, the SEO portfolios that individual investors buy on net strongly underperform relative to size-matching nonissuer portfolios as well as to SEO portfolios that institutional investors buy on net in the post-issue period.

Keywords: SEOs, order imbalance, market efficiency

JEL Classification: G14, G32

Suggested Citation

Huh, Sahn-Wook and Subrahmanyam, Avanidhar, Order Flow Patterns Around Seasoned Equity Offerings and Their Implications for Stock Price Movements. Available at SSRN: https://ssrn.com/abstract=641601 or http://dx.doi.org/10.2139/ssrn.641601

Sahn-Wook Huh (Contact Author)

State University of New York (SUNY) - Department of Finance ( email )

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Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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