Order Flow Patterns Around Seasoned Equity Offerings and Their Implications for Stock Price Movements
52 Pages Posted: 4 Jan 2005
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: Suggested Citation