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Research Details
Equity Issues and Stock Price Dynamics, Journal of Finance
Abstract
This paper presents an information-theoretic, infinite horizon model of the equity issue decision. The model predicts that (a) equity issues on average are preceded by an abnormal positive return on the stock, although for some firms the issue is preceded by a loss; (b) equity issues on average are preceded by an abnormal rise in the market; and (c) the stock price drops at the announcement of an issue. The model provides a measure of the welfare cost of asymmetric information; the welfare loss may be small even if the price drop at issue announcement is large.
Type
Article
Author(s)
Deborah Lucas, Robert L. McDonald
Date Published
1990
Citations
Lucas, Deborah, and Robert L. McDonald. 1990. Equity Issues and Stock Price Dynamics. Journal of Finance. 45(4): 1019-1043.
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