Investor sentiment and stock price: Empirical evidence from Chinese SEOs

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.

Automated summary

This study examines how market interacts with investor sentiment during seasoned equity offerings (SEOs) by Chinese listed firms. The findings suggest that investor sentiment plays a significant role in driving pre-announcement abnormal returns, and the market corrects sentiment-driven overvaluation within a month post-announcement. This reinforces the view that market timers exploit investor sentiment for issuing seasoned shares.