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Equity Issuances, Equity Mutual Fund Flows, and Noise Trader Sentiment

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  • H.H. Chiu
  • O. Kini

Abstract

We examine whether equity issuances initial public offerings (IPOs) and seasoned equity offerings (SEOs) are in part driven by investor sentiment by using equity mutual fund flows to proxy for the rational and/or irrational components of aggregate demand for equity. We find that more firms issue equity when flows are higher and repurchase equity when flows are lower. More firms file with the Securities Exchange Commission when predicted flows in the expected issuance month are greater. Price revisions are positively related to contemporaneous flows and unexpected flows. Initial returns are positively related to contemporaneous flows only for IPO issuances. These results are driven by retail, and not institutional, flows. Our evidence suggests that investor sentiment partially drives equity issuances.

Suggested Citation

  • H.H. Chiu & O. Kini, 2014. "Equity Issuances, Equity Mutual Fund Flows, and Noise Trader Sentiment," Review of Finance, European Finance Association, vol. 18(2), pages 749-802.
    • Handle: RePEc:oup:revfin:v:18:y:2014:i:2:p:749-802.
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    File URL: http://hdl.handle.net/10.1093/rof/rft009
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    Cited by:

    1. Kozo Omori & Tomoki Kitamura, 2021. "Managers’ skills and fund flows in the Japanese mutual fund market," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 39(4), pages 675-696, November.
    2. Al-Nasseri, Alya & Menla Ali, Faek & Tucker, Allan, 2021. "Investor sentiment and the dispersion of stock returns: Evidence based on the social network of investors," International Review of Financial Analysis, Elsevier, vol. 78(C).
    3. Chen, Yi-Wen & Chou, Robin K. & Lin, Chu-Bin, 2019. "Investor sentiment, SEO market timing, and stock price performance," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 28-43.

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