Price informativeness and stock return synchronicity: Evidence from the pricing of seasoned equity offerings

Kalok Chan and Yue-Cheong Chan

Journal of Financial Economics, 2014, vol. 114, issue 1, 36-53

Abstract: We investigate what stock return synchronicity reflects in terms of price informativeness by examining its effect on the pricing of seasoned equity offerings (SEOs). Based on 5,087 SEOs from 1984 to 2007, we find a significantly negative relation between stock return synchronicity (estimated as the logit transformation of the R-squared statistic from a two-factor regression) and SEO discounts (the percentage differences between pre-offer day closing prices and offer prices). The negative relation is strongest when there is no analyst coverage, and it declines as analyst coverage increases. This shows that stock price is more informative when stock return synchronicity is higher and also that information asymmetry can be mitigated by analyst coverage. We further decompose stock return synchronicity into the market comovement and industry comovement components and find that both components are equally important in affecting SEO discounts.

Keywords: Seasoned equity offerings; Stock return synchronicity; Price informativeness (search for similar items in EconPapers)
JEL-codes: G14 G24 G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (69)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:114:y:2014:i:1:p:36-53

DOI: 10.1016/j.jfineco.2014.07.002

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