Divergence of opinion and long-run performance of private placements

evidence from the auction market

Jianlei Han, Zheyao Pan, Guangli Zhang

Research output: Contribution to journalArticle

Abstract

In this article, we propose and construct a direct measure of investors' divergence of opinion based on auction bids data from private placements in China. We find that 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, alternative dispersion measures, and self'selection bias. Moreover, this negative relation is stronger for stocks with more stringent short'sale constraints. Our findings therefore provide strong evidence for the overvaluation hypothesis.
Original languageEnglish
Pages (from-to)271-302
Number of pages32
JournalJournal of Financial Research
Volume42
Issue number2
Early online date2019
DOIs
Publication statusPublished - 1 Jun 2019

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