Seasoned -Equity-Offer Return, Volatility, and Order Imbalance
Date Issued
2009
Date
2009
Author(s)
Wang, Hsuan-Yin
Abstract
There are a lot of discussions about seasoned-equity-offer (SEO), and we know that the firm who makes SEO is always underperformance based on different reasons. Then we want to examine whether there is a relation between return and contemporaneous or lagged order imbalances in SEO firms. Moreover, we want to find if there is any strategy that could beat the original open-to-close return. First we use intraday transactions to examine the relation between returns and contemporaneous as well as lagged order imbalances by a multi-regression model. The empirical result shows that the contemporaneous imbalances have a significantly positive impact on returns. Moreover, conditional on knowing the current order imbalances, there is a negative relation between lagged-one imbalances and return, except for ten minutes interval. As for the exception of ten minutes interval, we imply that the market might not react to the information completely within ten minutes. In addition, we examine the relation between volatility and order imbalances by a GARCH(1,1) model. The result shows that market makers control volatility so well that the relation between volatility and order imbalances is not strong. Market makers do have the capacity for stabilizing the price volatility of SEO firms. Furthermore, we perform a simple regression model to investigate whether there is any relation between market capitalization and order imbalances. From our empirical result, we cannot find the small firm effect. It shows that the effect comes from volatility but not small firm effect itself. At last, we try to build a trading strategy for the SEO firms after investigating the relation among returns, order imbalances, and volatility. We use quote prices and trade prices to be the basic to implement our strategy, but only the one using trade prices earns a positive return, and beats the original open-to-close return. However, there is a limitation of trading time in our strategy. We believe that the profit could be improved if we can trade without this limitation of trading time.
Subjects
Order Imbalance
Type
thesis
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