Figure 1.
Market Adjusted Average CAR of Different Groups
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April
2018, 14(2): 647-652.
doi: 10.3934/jimo.2017066
A study on institutional investors selecting better stocks: Evidence from SEOs in China
| 1. | School of Economics, Peking University, Beijing 100871, China |
| 2. | School of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, China |
Using the data of stock returns and the variations of quarterly institutional ownership around Secondary Equity Offerings (SEOs) in China from 2004 to 2008, we verify that institutional investors are smart in selecting stocks. Sorting the SEOs samples into two groups according to whether there is an increase or decrease in institutional ownership, we find no significant difference in stock returns between the two groups before SEOs, but higher returns among the group with increases in institutional ownership over 1 month, 3 month, 6 month, 9 month, 12 month and 18 month periods, respectively. This result indicates the evidence of the stronger stock selection ability of institutional investors.
Mathematics Subject Classification:
Primary: 91B26; Secondary: 91G70.
Citation:
Rui Li, Shaoyong Lai. A study on institutional investors selecting better stocks: Evidence from SEOs in China. Journal of Industrial and Management Optimization,
2018, 14
(2)
: 647-652.
doi: 10.3934/jimo.2017066
![]()
References:
| [1] |
P. Beissner,
Equilibrium princes and trade under ambiguous volatility, Economic Theory, 61 (2016), 1-26.
doi: 10.1007/s00199-016-0979-y. |
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R. Boucekkine, C. Camacho and G. Fabbri,
Spatial dynamics and convergence: The spatial AK model, Journal of Economic Theory, 148 (2013), 2719-2736.
doi: 10.1016/j.jet.2013.09.013. |
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S. J. Brown and J. B. Warner,
Using daily stock returns: The case of event studies, Journal of Financial Economics, 14 (1985), 3-31.
doi: 10.1016/0304-405X(85)90042-X. |
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K. Chen and X. C. Dong,
Double long-term underperformance in Chinese stock market SEO stock returns and the performance of the company's performance, Commercial Research, 2 (2006), 160-164.
|
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S. Gibson, A. Safieddine and R. Sonti,
Smart investments by smart money: Evidence from seasoned equity offerings, Journal of Financial Economics, 72 (2004), 581-604.
doi: 10.1016/j.jfineco.2003.05.001. |
| [6] |
J. V. D. Harta, S. Erica and V. D. Dick,
Stock selection strategies in emerging markets, Journal of Empirical Finance, 10 (2003), 105-132.
doi: 10.1016/S0927-5398(02)00022-1. |
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T. Loughran and J. R. Ritter,
The new issues puzzle, Journal of Finance, 50 (1995), 23-51.
doi: 10.1111/j.1540-6261.1995.tb05166.x. |
| [8] |
H. Michael, S. L. James and M. B. Wintoki,
Institutional Investors and the Long-Run Performance of Private Placements, Financial Management Association Meetings, 10 (2006), 1-27.
|
| [9] |
S. L. Tang and Y. M. Hu,
Institutional Investors' Selecting Stock Ability and Information Transparency of Listed Company -An Evidence from Shenzhen Stock Exchange, PhD dissertation, Shanghai Jiao Tong University, (2009).
|
| [10] |
C. J. Thomas, S. He and G. Hu,
The role of institutional investors in seasoned equity offerings, Journal of Financial Economics, 94 (2009), 384-411.
doi: 10.1016/j.jfineco.2008.12.011. |
show all references
The reviewing process was handled by Changjun Yu
References:
| [1] |
P. Beissner,
Equilibrium princes and trade under ambiguous volatility, Economic Theory, 61 (2016), 1-26.
doi: 10.1007/s00199-016-0979-y. |
| [2] |
R. Boucekkine, C. Camacho and G. Fabbri,
Spatial dynamics and convergence: The spatial AK model, Journal of Economic Theory, 148 (2013), 2719-2736.
doi: 10.1016/j.jet.2013.09.013. |
| [3] |
S. J. Brown and J. B. Warner,
Using daily stock returns: The case of event studies, Journal of Financial Economics, 14 (1985), 3-31.
doi: 10.1016/0304-405X(85)90042-X. |
| [4] |
K. Chen and X. C. Dong,
Double long-term underperformance in Chinese stock market SEO stock returns and the performance of the company's performance, Commercial Research, 2 (2006), 160-164.
|
| [5] |
S. Gibson, A. Safieddine and R. Sonti,
Smart investments by smart money: Evidence from seasoned equity offerings, Journal of Financial Economics, 72 (2004), 581-604.
doi: 10.1016/j.jfineco.2003.05.001. |
| [6] |
J. V. D. Harta, S. Erica and V. D. Dick,
Stock selection strategies in emerging markets, Journal of Empirical Finance, 10 (2003), 105-132.
doi: 10.1016/S0927-5398(02)00022-1. |
| [7] |
T. Loughran and J. R. Ritter,
The new issues puzzle, Journal of Finance, 50 (1995), 23-51.
doi: 10.1111/j.1540-6261.1995.tb05166.x. |
| [8] |
H. Michael, S. L. James and M. B. Wintoki,
Institutional Investors and the Long-Run Performance of Private Placements, Financial Management Association Meetings, 10 (2006), 1-27.
|
| [9] |
S. L. Tang and Y. M. Hu,
Institutional Investors' Selecting Stock Ability and Information Transparency of Listed Company -An Evidence from Shenzhen Stock Exchange, PhD dissertation, Shanghai Jiao Tong University, (2009).
|
| [10] |
C. J. Thomas, S. He and G. Hu,
The role of institutional investors in seasoned equity offerings, Journal of Financial Economics, 94 (2009), 384-411.
doi: 10.1016/j.jfineco.2008.12.011. |
Table 1.
Cumulative Abnormal Returns of Different Groups
| Windows | (1) | (2) | (1)-(2) | ||
| around | Full | Institutional | Institutional | ||
| SEOs | Sample | Ownership | Ownership | ||
| (month) | Increased | Decreased | |||
| Average Return | 3.887*** | 3.598*** | 4.376*** | -0.778 | |
| (-36, 0) | T value | 14.612 | 10.981 | 9.704 | -1.417 |
| P value | 0.000 | 0.000 | 0.000 | 0.158 | |
| Average Return | 4.452*** | 4.274*** | 4.754*** | -0.480 | |
| (-24, 0) | T value | 17.027 | 12.390 | 12.070 | -0.887 |
| P value | 0.000 | 0.000 | 0.000 | 0.376 | |
| Average Return | 0.869*** | 0.940*** | 0.748*** | 0.192 | |
| (-6, 0) | T value | 12.031 | 9.229 | 8.385 | 1.416 |
| P value | 0.000 | 0.000 | 0.000 | 0.158 | |
| Average Return | 0.105*** | 0.161*** | 0.010 | 0.151*** | |
| (0, 1) | T value | 4.484 | 5.314 | 0.285 | 3.182 |
| P value | 0.000 | 0.000 | 0.777 | 0.002 | |
| Average Return | 0.155*** | 0.238*** | 0.014 | 0.223*** | |
| (0, 3) | T value | 4.561 | 5.356 | 0.288 | 3.250 |
| P value | 0.000 | 0.000 | 0.774 | 0.001 | |
| Average Return | 0.229*** | 0.415*** | -0.087 | 0.502*** | |
| (0, 6) | T value | 3.869 | 5.069 | -1.315 | 4.765 |
| P value | 0.000 | 0.000 | 0.192 | 0.000 | |
| Average Return | 0.252*** | 0.485*** | -0.141* | 0.626*** | |
| (0, 9) | T value | 3.451 | 4.668 | -1.959 | 4.951 |
| P value | 0.001 | 0.000 | 0.053 | 0.000 | |
| Average Return | 0.197** | 0.437*** | -0.209*** | 0.646*** | |
| (0, 12) | T value | 2.457 | 3.784 | -2.772 | 4.684 |
| P value | 0.015 | 0.000 | 0.007 | 0.000 | |
| Average Return | 0.110 | 0.237** | -0.106 | 0.344** | |
| (0, 18) | T value | 1.570 | 2.528 | -1.097 | 2.546 |
| P value | 0.118 | 0.013 | 0.276 | 0.012 | |
| Average Return | 0.073 | 0.113** | 0.005 | 0.108 | |
| (0, 24) | T value | 1.623 | 2.409 | 0.055 | 1.054 |
| P value | 0.106 | 0.017 | 0.957 | 0.294 | |
| Note: | |||||
| Windows | (1) | (2) | (1)-(2) | ||
| around | Full | Institutional | Institutional | ||
| SEOs | Sample | Ownership | Ownership | ||
| (month) | Increased | Decreased | |||
| Average Return | 3.887*** | 3.598*** | 4.376*** | -0.778 | |
| (-36, 0) | T value | 14.612 | 10.981 | 9.704 | -1.417 |
| P value | 0.000 | 0.000 | 0.000 | 0.158 | |
| Average Return | 4.452*** | 4.274*** | 4.754*** | -0.480 | |
| (-24, 0) | T value | 17.027 | 12.390 | 12.070 | -0.887 |
| P value | 0.000 | 0.000 | 0.000 | 0.376 | |
| Average Return | 0.869*** | 0.940*** | 0.748*** | 0.192 | |
| (-6, 0) | T value | 12.031 | 9.229 | 8.385 | 1.416 |
| P value | 0.000 | 0.000 | 0.000 | 0.158 | |
| Average Return | 0.105*** | 0.161*** | 0.010 | 0.151*** | |
| (0, 1) | T value | 4.484 | 5.314 | 0.285 | 3.182 |
| P value | 0.000 | 0.000 | 0.777 | 0.002 | |
| Average Return | 0.155*** | 0.238*** | 0.014 | 0.223*** | |
| (0, 3) | T value | 4.561 | 5.356 | 0.288 | 3.250 |
| P value | 0.000 | 0.000 | 0.774 | 0.001 | |
| Average Return | 0.229*** | 0.415*** | -0.087 | 0.502*** | |
| (0, 6) | T value | 3.869 | 5.069 | -1.315 | 4.765 |
| P value | 0.000 | 0.000 | 0.192 | 0.000 | |
| Average Return | 0.252*** | 0.485*** | -0.141* | 0.626*** | |
| (0, 9) | T value | 3.451 | 4.668 | -1.959 | 4.951 |
| P value | 0.001 | 0.000 | 0.053 | 0.000 | |
| Average Return | 0.197** | 0.437*** | -0.209*** | 0.646*** | |
| (0, 12) | T value | 2.457 | 3.784 | -2.772 | 4.684 |
| P value | 0.015 | 0.000 | 0.007 | 0.000 | |
| Average Return | 0.110 | 0.237** | -0.106 | 0.344** | |
| (0, 18) | T value | 1.570 | 2.528 | -1.097 | 2.546 |
| P value | 0.118 | 0.013 | 0.276 | 0.012 | |
| Average Return | 0.073 | 0.113** | 0.005 | 0.108 | |
| (0, 24) | T value | 1.623 | 2.409 | 0.055 | 1.054 |
| P value | 0.106 | 0.017 | 0.957 | 0.294 | |
| Note: | |||||
Table 2.
Institutional Ownership Change after SEOs and Stock Performance
| dependent | CAR | CAR | CAR | CAR | CAR | CAR | CAR |
| variable | (0, 1) | (0, 3) | (0, 6) | (0, 9) | (0, 12) | (0, 18) | (0, 24) |
| Increased | 0.071* | 0.067* | 0.143* | 0.119*** | 0.123** | 0.035 | 0.024 |
| (1.774) | (1.256) | (1.761) | (2.379) | (2.982) | (0.345) | (0.279) | |
| Private Offering | 0.105* | 0.069 | 0.192* | 0.129 | 0.057 | 0.205 | 0.197* |
| (1.953) | (0.975) | (1.778) | (1.120) | (0.433) | (1.545) | (1.702) | |
| Controls | √ | √ | √ | √ | √ | √ | √ |
| Observations | 245 | 245 | 245 | 245 | 245 | 245 | 245 |
| R-square | 0.074 | 0.065 | 0.090 | 0.060 | 0.021 | 0.045 | 0.078 |
| dependent | CAR | CAR | CAR | CAR | CAR | CAR | CAR |
| variable | (0, 1) | (0, 3) | (0, 6) | (0, 9) | (0, 12) | (0, 18) | (0, 24) |
| Increased | 0.071* | 0.067* | 0.143* | 0.119*** | 0.123** | 0.035 | 0.024 |
| (1.774) | (1.256) | (1.761) | (2.379) | (2.982) | (0.345) | (0.279) | |
| Private Offering | 0.105* | 0.069 | 0.192* | 0.129 | 0.057 | 0.205 | 0.197* |
| (1.953) | (0.975) | (1.778) | (1.120) | (0.433) | (1.545) | (1.702) | |
| Controls | √ | √ | √ | √ | √ | √ | √ |
| Observations | 245 | 245 | 245 | 245 | 245 | 245 | 245 |
| R-square | 0.074 | 0.065 | 0.090 | 0.060 | 0.021 | 0.045 | 0.078 |
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