Khan is at the Carlson School of Management, University of Minnesota. Kogan is at the MIT Sloan School of Management. Serafeim is at Harvard Business School. We thank Gordon Alexander; Jeff Callen; John Core; John DeTore; Campbell Harvey (Editor); Hai Lu, Krishna Palepu; Ricardo Reis; Jay Ritter; Sugata Roychowdhury; Ross Watts; Jeffrey Wurgler (AFA discussant); an anonymous referee and Associate Editor; seminar participants at the Harvard Business School, London School of Economics, MIT, University of Minnesota and the AFA Atlanta 2010 meetings for valuable comments.
Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs
Article first published online: 19 JUL 2012
© 2012 The American Finance Association
The Journal of Finance
Volume 67, Issue 4, pages 1371–1395, August 2012
How to Cite
KHAN, M., KOGAN, L. and SERAFEIM, G. (2012), Mutual Fund Trading Pressure: Firm-Level Stock Price Impact and Timing of SEOs. The Journal of Finance, 67: 1371–1395. doi: 10.1111/j.1540-6261.2012.01750.x
- Issue published online: 19 JUL 2012
- Article first published online: 19 JUL 2012
We use price pressure resulting from purchases by mutual funds with large capital inflows to identify overvalued equity. This is a relatively exogenous overvaluation indicator as it is associated with who is buying—buyers with excess liquidity—rather than what is being purchased. We document substantial stock price impact associated with purchases by high-inflow mutual funds, and find the probability of a seasoned equity offering (SEO), insider sales, and the probability of a stock-based acquisition increase significantly in the four quarters following the mutual fund buying pressure. These results provide new evidence that firm managers are able to identify and exploit overvalued equity.