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How does analyst forecast dispersion affect SEO discounts in uniform-price auction system? Evidence from investor bids in China

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  • Yang, Mingjing
  • Cheng, Xiaoke
  • Sun, Qian
  • Lu, Chao

Abstract

This study investigates the relationship between the analyst forecast dispersion and SEO pricing in auction system of SEOs in China. Leveraging detailed investor bids, our findings show that the analyst forecast dispersion has two opposite information contents, information asymmetry and divergent opinions, both of which affect the investor bidding behavior and SEO pricing. The information asymmetry effect leads to a decrease in weighted average of investor bid prices and the divergent opinions effect leads to an increase in the standard deviation of bid prices. The net effect of the two information contents in analyst forecast dispersion results in an increase in SEO discounts, suggesting the effect of information asymmetry outweighs that of divergent opinions. Furthermore, the transmission mechanism test shows that the investor bidding behavior is a complete transmission channel underling the impact of analyst forecast dispersion and SEO discounts. Our findings contribute to the literature related to SEO discount determinants and how financial analysts affect capital markets.

Suggested Citation

  • Yang, Mingjing & Cheng, Xiaoke & Sun, Qian & Lu, Chao, 2019. "How does analyst forecast dispersion affect SEO discounts in uniform-price auction system? Evidence from investor bids in China," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 198-208.
    • Handle: RePEc:eee:reveco:v:63:y:2019:i:c:p:198-208
    DOI: 10.1016/j.iref.2018.09.009
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    Cited by:

    1. Chung, Kee H. & Kim, Oliver & Lim, Steve C. & Yang, Sean, 2019. "An analytical measure of market underreaction to earnings news," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 612-624.
    2. Li, Haoyang & Yang, Mingjing & Chan, Kam C. & Gao, Shenghao, 2022. "Do institutional investors’ corporate site visits impact seasoned equity offering discounts? Evidence from detailed investor bids in SEO auctions," Research in International Business and Finance, Elsevier, vol. 62(C).
    3. Cai, Yuxin & Lyu, Huaili & Peng, Meng, 2024. "The role of sponsor representatives in SEO underpricing: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 30-45.

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