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Divergence of opinion and long-run performance of private placements: evidence from the auction market

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posted on 2023-05-28, 00:20 authored by Han, J, Pan, Z, Zhang, G
In this paper, we propose and construct a direct measure of investors' divergence of opinion based on auction bids data of the private placements in China. We find that the firms with higher bids dispersion generate lower long-run stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount, earnings management, analysts forecast dispersion, and self-selection bias. Moreover, this negative relation is stronger for stocks with more stringent short-sale constraints. Our findings therefore provide strong evidence in support of the Miller (1977)'s divergence of opinion hypothesis.



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Copyright 2017 University of Tasmania JEL classification: D44, G12, G14 Discussion Paper Series N 2017-09

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