Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing

This article examines the influence of SEC’s Rule 105, Regulation M, on informed trading and the information content of stock price surrounding the offer day of a seasoned equity offering (SEO). The results of this study show that the constraints on short sales imposed by the Rule inhibit informed t...

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Main Authors: Charoenwong, C., DING, David K., Wang, Ping
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Language:English
Published: Institutional Knowledge at Singapore Management University 2006
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/715
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Institution: Singapore Management University
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spelling sg-smu-ink.lkcsb_research-17142010-09-23T06:24:04Z Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing Charoenwong, C. DING, David K. Wang, Ping This article examines the influence of SEC’s Rule 105, Regulation M, on informed trading and the information content of stock price surrounding the offer day of a seasoned equity offering (SEO). The results of this study show that the constraints on short sales imposed by the Rule inhibit informed trading and hamper the incorporation of information into the stock price for offers with private adverse information and without listings on the options market. These constraints contribute to a substantial increase in price uncertainty and market’s relatively more sensitive response to seller-initiated trading. After controlling for other potential causes of SEO discounts, such as price pressure and rent expropriation, our results show that the decrease in information content of stock price just before an offer day has a significant impact on the value discount of an SEO. The Rule’s restrictions on informed trading appear to cause overpricing of those stocks for which traders have access to private adverse information, which increases the pressure to sell on the offer day. 2006-10-01T07:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/715 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University short sales constraint information content of stock price seasoned equity offering (SEO) SEC Rule 105. Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic short sales constraint
information content of stock price
seasoned equity offering (SEO)
SEC Rule 105.
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle short sales constraint
information content of stock price
seasoned equity offering (SEO)
SEC Rule 105.
Finance and Financial Management
Portfolio and Security Analysis
Charoenwong, C.
DING, David K.
Wang, Ping
Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
description This article examines the influence of SEC’s Rule 105, Regulation M, on informed trading and the information content of stock price surrounding the offer day of a seasoned equity offering (SEO). The results of this study show that the constraints on short sales imposed by the Rule inhibit informed trading and hamper the incorporation of information into the stock price for offers with private adverse information and without listings on the options market. These constraints contribute to a substantial increase in price uncertainty and market’s relatively more sensitive response to seller-initiated trading. After controlling for other potential causes of SEO discounts, such as price pressure and rent expropriation, our results show that the decrease in information content of stock price just before an offer day has a significant impact on the value discount of an SEO. The Rule’s restrictions on informed trading appear to cause overpricing of those stocks for which traders have access to private adverse information, which increases the pressure to sell on the offer day.
format text
author Charoenwong, C.
DING, David K.
Wang, Ping
author_facet Charoenwong, C.
DING, David K.
Wang, Ping
author_sort Charoenwong, C.
title Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
title_short Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
title_full Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
title_fullStr Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
title_full_unstemmed Short Sales Contraints, Information Content of Stock Prices, and Seo Pricing
title_sort short sales contraints, information content of stock prices, and seo pricing
publisher Institutional Knowledge at Singapore Management University
publishDate 2006
url https://ink.library.smu.edu.sg/lkcsb_research/715
_version_ 1770569660507357184