Title

Short Sales Constraint and SEO Pricing

Publication Type

Journal Article

Version

Postprint

Publication Date

9-2013

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.

Keywords

Short sales constraint, Information content of stock prices, Seasoned equity offering (SEO), SEC Rule 105

Discipline

Finance and Financial Management

Research Areas

Finance

Publication

International Review of Financial Analysis

Volume

29

First Page

107

Last Page

118

ISSN

1057-5219

Identifier

10.1016/j.irfa.2013.04.001

Publisher

Elsevier