Security Issuances in Hot and Cold Markets

Min Maung ()
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Min Maung: Department of Finance and Management Science, Edwards School of Business, University of Saskatchewan, Saskatoon, S7N 5A7, Canada

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2014, vol. 17, issue 03, 1-45

Abstract: Overwhelming evidence indicates that firms time market conditions to issue equity. I investigate the motivations for security issuances in hot and cold markets. While it is commonly believed that firms tend to exploit overvaluations to issue equity and overinvest in so-called 'hot' markets, which often results in lower future returns, I show that security issuances in certain periods with lower adverse selection costs are motivated by fundamentals such as capital expenditures and financial constraints, and that these issuances can create shareholder wealth. In contrast, firms that issue equity during periods of high sentiment experience a decline in future returns.

Keywords: Security issuances; adverse selection; market timing; hot market; cold market; sentiments; JEL Classifications: G14; JEL Classifications: G31; JEL Classifications: G32 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2014
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091514500209

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