Wang, C. S. 2014. Using the Lottery View to Analyze the Subscription Fads of SEOs. NTU Management Review, 24 (2): 53-82. https://doi.org/10.6226/NTURM2014.MAR.R11044
Chao-Shi Wang, Associate Professor, Department of Business Administration, National Taichung University of Science and of Technology
Abstract
The seasoned equity offerings (SEOs) market demonstrates three significant characteristics: underpricing, high levels of information asymmetry, and low initial performance. Based on these characteristics, SEOs can be defined as lottery-type stocks described by Kumar (2009). Because SEOs can evince lottery-type characteristics, this paper investigates the relationship between SEOs similarity to the lottery and investor demand. The paper also measures SEOs performance after purchase to establish a trading strategy. Empirical results show that, along with the lottery-type characteristics, SEOs result in subscription fads. Statistical results remain significant even when a macroeconomic perspective and conditions for individual firms are introduced into the examining model. Finally, this paper analyzes evidence that the wealth of original shareholders is negatively affected when a firm issues lottery-type SEOs, in what is called an exploitation effect.
Keywords
seasoned equity offerings (SEOs)lotterysubscription