Hedge fund variables and short-run SEO returns

Abstract

Purpose The purpose of this paper is to determine if hedge fund variables (HFVs) are associated with short-run daily buy and hold abnormal returns (BHARs) for a 30-day window around announcement dates for seasoned equity offerings (SEOs). Design/methodology/approach This paper utilizes the event study metric that computes BHARs. These BHARs are used in a regression model as dependent variables with HFVs and nonhedge fund variables (NFVs) as independent variables. For regression tests, standard errors are clustered at the month level. Findings This paper offers three new findings. First, HFVs are significantly associated with SEO BHARs. Second, HFVs are capable being associated with stronger statistical significance compared to NFVs. Third, not using HFVs can produce an omitted-variable bias. Research limitations/implications This paper does not have information on which individual hedge funds use a strategy during the month of the offering but only the proportion of hedge funds that do. A research implication is the proportion can be associated with SEO BHARs in a fashion predicted based on a long or short position. Practical implications Hedge funds can use trading strategies to capitalize on established patterns of price behavior. Social implications Hedge funds enjoy a trading advantage over smaller investors. Originality/value This paper is the first study to document the association between hedge fund stratagems and stock returns around a major corporate event. It shows researchers should consider institutional trading strategies when studying the market response to a major corporate event.

Pass-Through and C Corp Outputs under TCJA

“…It would be 0.2780 if we used 2018 spreads. The latter is consistent with the empirical research by Hull et al (2018) who find an average DV of 0.263 for their sample of 1189 seasoned equity offers for firms that are smaller in size and would straddle the small and large firm size classifications given by Damodaran (2020). Finally, the medium ratings of A3 and Baa2 we find for OCRs for all of our PT and CC tests are consistent with that reported by Morningstar (2019), as these ratings are by far the most common ratings.…”

Business Wealth and Tax Policy

“…Damodaran [34] reports an average near 0.3 for a ratio composed of market debt to capital asset. Hull, Kwak, and Walker [40] analyze a sample of smaller 1189 seasoned equity offerings from 1999-2010 and find a similar value. While there can be great variation in what individual FPOs consider as their optimal target credit rating, it is likely that a typical FPO will achieve its ODV at a BBB rating that (for the most recent credit ratings) corresponds to an ODV that could approach 0.4.…”

Spatial tale of G-7 and BRICS stock markets during COVID-19: An event study

“…The use of BHAR and ABHAR is not frequent in the event study methodology of small durations. However, looking on to the scale of daily abnormal returns, the compounded measure of BHAR and ABHAR is mathematically and economically much superior to the simple addition nature of CAR and CAAR in portraying the actual economic impact(Hull et al, 2018) (see Appendix B). .03 ly log-normal returns of the index i in the estimation window, i.e., (-120 to -1).…”

“…BHAR in the event window(15)(16)(17)(18)(19)(20)(21)(22)(23)(24)(25)(26)(27)(28)(29) for G-7 and BRICS…”