A Study On The Impact Of Investor Sentiment On Seasoned Equity Pricing Efficiency

The seasoned equity offering(SEO)has become the first preference of refinancing since the Measures for the Administration of the Issuance of Securities by Listed Companies was implemented.Although the stock market participants are enthusiastic on the SEO,the issuing price is lower than the market price significantly,which is generally called the SEO underpricing.The SEO underpricing has been attracting increasing discussion by academic and practical circles.In this context,this paper takes the SEO pricing efficiency as the research topic.Basic on theoretical and empirical considerations,the paper researches the effect of investor sentiment on the SEO pricing efficiency by considering the characteristics of strong volatility and irrational behavior in Chinese stock market.This paper is aim at providing theoretical support for investment decision and supervision and administration in SEO market.Firstly,on the basis of defining the investor sentiment and describing the investor sentiment in the period of SEO,we review the relative literatures of investor sentiment evaluation which affects the SEO pricing efficiency and analyze their internal mechanism.Moreover,we clarify the investor sentiment how to affect the SEO pricing and pricing efficiency based on the HS,BSV and DHS models.Secondly,we measure and analyze the stock investor sentiment during the SEO window from the microcosmic perspective.This paper chooses the listed companies in Shanghai and Shenzhen stock exchange market which conducts SEO during the period 2006-2015 as the research sample.And it sets 60 trading days before and after the issuance of SEO as SEO window.Besides,the SEO pricing is viewed as a production process.In this production processthe fundamental factors are viewed as the inputs,and the SEO price is viewed as the output,we empirically study the investor sentiment by applying empirical mode decomposition(EMD)and principal component analysis(PCA).The empirical results show that the general trend of investor sentiment is increasing:(ⅰ)the trend of investor sentiment is increasing before SEO;(ⅱ)the overreaction of investor leads to that the trend of investor sentiment is rapidly increasing after SEO;(ⅲ)the trend of investor sentiment keep a high level after SEO.Thirdly,the modified capital asset pricing model is constructed by combining the investor sentiment data of individual stocks and the market return data,then,we analyzed the sensitivity coefficient of investor sentiment.During the SEO window,the stock average return of SEO companies is 0.1645%which is higher than the average return of stock market.Meanwhile,the investor sentiment is one of the most important factors which affect the stock average returns.From the perspective of investment portfolio,the sensitivity coefficient between investor sentiment and return on assets is 0.342.More important,this impact coefficient of post-SEO is more sensitive than that of pre-SEO.From the individual stock perspective,the Beta of investor sentiment and Beta of market are normal distribution basically.The Beta average value of investor sentiment is 0.317,which indicates that the stock returns of SEO companies are forward sensitivity to the investor sentiment.After that,the SEO pricing efficiency is evaluated and analyzed.In order to identifying the important factors,the random forest method is applied.The SEO pricing efficiency is evaluated by using the stochastic frontier analysis method.The empirical study shows that the performance of stochastic frontier model with half-normal distribution is better than that of model with exponential and GAMMA distribution by considering the goodness-of-fit.The average pricing efficiency is 0.8290 which is a higher level,but we find that 17%of pricing efficiency is lost during the SEO process.Additionally,the pricing efficiency does not increase with the development of the security market.For example,the SEO pricing efficiency significantly reduced in 2015.The results also show that the difference of pricing efficiency is small in different industries.However,the real estate industry as the pillar industry in China whose pricing efficiency is significantly lower than that of other industries.Lastly,in order to investigate the impact of investor sentiment and investor sentiment beta on SEO pricing efficiency,the econometric models are constructed and the influencing factor and characteristic are empirical studied based on the econometric models.The empirical study shows that the investor sentiment does not significantly influence pricing efficiency during the whole SEO period.While the investor sentiment positively affects the SEO pricing efficiency before the SEO is conducted.A positive investor sentiment is helpful for enhancing attention to listed companies,decreasing the degree of information asymmetry,which increases the accuracy of offering price.Additionally,the cross effect of investor sentiment and investor sentiment beta is significant.Thus,the investor sentiment has nonlinear effect on SEO pricing efficiency.For the aim of improving the SEO pricing efficiency,we provide some countermeasures of improving investor sentiment from the aspects of market,company and investor themselves.The research on the investor sentiment and its impact on the SEO pricing efficiency are helpful to understand the investor’s psychology and behavior in financial market.Meanwhile,this paper enriches the asset pricing and venture management theory,and the micro structure of the pricing is also detected,which can support the supervisor to make more efficient issuance policy and investors to form more accurate investment decisions.