Open AccessSecondary equity offerings as a leading indicator of market performance
Author(s) -
Jeff Cain,
Kellen Walsh
Publication year - 2010
Publication title -
studies by undergraduate researchers at guelph
Language(s) - English
Resource type - Journals
ISSN - 2291-1367
DOI - 10.21083/surg.v3i2.1111
Subject(s) - equity (law) , herding , recession , business , monetary economics , stock market , secondary market , market value , index (typography) , financial economics , economics , stock exchange , finance , paleontology , horse , forestry , world wide web , political science , computer science , law , biology , geography , keynesian economics
Secondary Equity Offerings as a Leading Indicator of Market Performance examines the perception of an imminent market downturn as a motive behind new dilutive stock issuances. Market conditions, represented by the value of the TSX composite index, are found to have a weak , yet significant relationship with the total gross proceeds of secondary offerings. The paper interprets this relationship as evidence that an influx of seasoned equity offerings is a leading indicator of a market downturn. The paper suggests that this is a result of opportunistic managers cashing in on favourable market conditions in order to insulate their capital holdings while the opportunity is still available. The paper observes a trend in which the leading secondary issuances tend to occur in two distinct peaks. The “dual peak” effect is believed to be a product of herding by managers due to relative risk sensitivity.