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Short sales constraint and SEO pricing

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  • Charoenwong, Charlie
  • Ding, David K.
  • Wang, Ping

Abstract

We examine the influence of SEC's Rule 105 on informed trading and the information content of stock prices around an SEO's offer day. We show that constraints on short sales inhibit informed trading and hamper incorporation of information into stock prices for offers whose traders have private adverse information and without options listing. The constraints contribute to increased price uncertainty and higher market sensitivity to seller-initiated trading. After controlling for other causes of SEO discounts, we find that the decrease in information content of stock prices just before an offer day has a significant impact on the SEO's value discount.

Suggested Citation

  • Charoenwong, Charlie & Ding, David K. & Wang, Ping, 2013. "Short sales constraint and SEO pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 107-118.
    • Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:107-118
    DOI: 10.1016/j.irfa.2013.04.001
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    Cited by:

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    2. Kwaku Boafo Baidoo, 2019. "The Effects of Short Selling on Financial Markets Volatilities," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 5(2), pages 218-228.

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    More about this item

    Keywords

    Short sales constraint; Information content of stock prices; Seasoned equity offering (SEO); SEC Rule 105;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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