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Investor sentiment and stock price: Empirical evidence from Chinese SEOs

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  • Lan, Yueqin
  • Huang, Yong
  • Yan, Chao

Abstract

We examine whether and how the market interacts with investor sentiment in the context of seasoned equity offerings (SEOs) by Chinese listed firms. We adopt the component of market index return, which cannot be explained by fundamental macro-economic factors as a proxy for the market-wide investor sentiment, and overnight stock returns proxying for the firm-specific sentiment. We find robust evidence that investor sentiment drives the pre-announcement abnormal return. In the post-announcement period, the market corrects the sentiment-driven overvaluation within about one month. These findings reinforce the view that market timers take advantage of investor sentiment to issue seasoned shares.

Suggested Citation

  • Lan, Yueqin & Huang, Yong & Yan, Chao, 2021. "Investor sentiment and stock price: Empirical evidence from Chinese SEOs," Economic Modelling, Elsevier, vol. 94(C), pages 703-714.
  • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:703-714
    DOI: 10.1016/j.econmod.2020.02.012
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    More about this item

    Keywords

    Investor sentiment; Seasoned equity offering; Overvaluation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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