Graduate School of Business Administration, University of Southern California. The authors wish to thank René Stulz (the editor) and an anonymous referee for very helpful suggestions. The paper benefited from comments and discussions by M. Bagnoli, B. Biais, P. Bossaerts, K. Daniel, R. Jefferis, D. Seppi, and A. Subrahmanyam as well as seminar participants at USC, UC Irvine, INSEAD, the Free University of Brussels, and the Western Finance Association. The usual disclaimer applies.
Trading and Manipulation Around Seasoned Equity Offerings
Article first published online: 30 APR 2012
1993 The American Finance Association
The Journal of Finance
Volume 48, Issue 1, pages 213–245, March 1993
How to Cite
GERARD, B. and NANDA, V. (1993), Trading and Manipulation Around Seasoned Equity Offerings. The Journal of Finance, 48: 213–245. doi: 10.1111/j.1540-6261.1993.tb04707.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
We investigate the potential for manipulation due to the interaction between secondary market trading prior to a seasoned equity offering (SO) and the pricing of the offering. Informed traders acting strategically may attempt to manipulate offering prices by selling shares prior to the SO, and profit subsequently from lower prices in the offering. The model predicts increased selling prior to a SO, leading to increases in the market maker's inventory and temporary price decreases. Further, since manipulation conceals information, the ratio of temporary to permanent components of the price movements is predicted to increase.