Does investor sentiment affect stock pricing? Evidence from seasoned equity offerings in China

Abstract

Seasoned equity offerings attract a great deal of attention from investors in China's stock market, and they provide natural experimental environment for examining relationship between investor sentiment and asset pricing. We measure the investor sentiment on the individual stock level and examine its impact on stock pricing by using seasoned equity offerings (SEO) samples in the China's stock market from 2006 to 2019. The study shows that investor sentiment gradually rises during the Pre-SEO window and stays at a relatively high level after the new equity issuance. Meanwhile, investor sentiment is a significant pricing factor during the SEO window. However, the role of investor sentiment is different during different stages of SEO events, with a negative and positive impact on the Pre-SEO window and Post-SEO window respectively. Overall, this study identifies the pricing mechanism of investor sentiment in Chinese SEO market and provides some policy implications for portfolio management and market regulation.

Keywords

• investor sentiment
• asset pricing
• seasoned equity offerings
• event study