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How Much Does Investor Sentiment Really Matter for Equity Issuance Activity?


  • The authors greatly appreciate the comments of an anonymous referee, Andrew Bobey, Bill Bobey, Laurence Booth, Qing Hao, Tim Jenkinson, Raymond Kan, Michelle Lowry, Jan Mahrt-Smith, Tom McCurdy, Jay Ritter, Alan White, Kent Womack, and participants at the 2006 Northern Finance Association meetings and the European Financial Management Symposium on Initial Public Offerings. Data were obtained through the generous help of Yanming Fei of the Alberta Securities Commission, Kathryn Ryan of the Canadian Venture Capital Association, Arden Matheson, Michael Robinson, Diane Shields-Morrison, and Liz Watson of the University of Calgary, Jean-Marc Suret of l'Université Laval, Jeff MacIntosh of the University of Toronto, and Marianne Welch of the University of Western Ontario.


We study the extent to which investor sentiment matters for aggregate equity issuance activity. We focus on firms that are susceptible to investor sentiment and for which accurate measures of economic fundamentals are available. While sentiment on its own matters for equity issuance, it matters relatively little once we control for accurately measured fundamentals. Collectively, proxies for sentiment explain roughly 10 percentage points of the time-series variation of equity issuance beyond the roughly 40% explained by fundamentals. We conclude that investor sentiment does not seem to matter very much for aggregate equity issuance activity.