Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7355477 | International Review of Economics & Finance | 2018 | 12 Pages |
Abstract
Using a unique investor bid price database of a uniform-price auction pricing mechanism of SEOs in China, we seek answers to two research questions: how does value uncertainty relate to investor bid prices (weighted average and standard deviation) and to the subsequent SEO pricing in an auction price mechanism? What is the underlying transmission mechanism between value uncertainty and SEO discounts? Our findings suggest that: (1) the weighted average of investor bid prices is negatively correlated with value uncertainty, indicating an information cost effect; (2) the dispersion of bids (proxied by standard deviation of bid prices) is positively correlated with value uncertainty, indicating the presence of a heterogeneous investor beliefs effect; and (3) SEO discounts are negatively correlated with the weighted average bid price and with the bid price standard deviation. The magnitude of this impact on the SEO discounts, however, is larger for the weighted average bid price than the standard deviation, suggesting that the information cost effect outweighs the heterogeneous investor beliefs effect. Moreover, we find that investor bid prices (weighted average and standard deviation) form part of the transmission mechanism shaping the relationship between value uncertainty and SEO discounts. Our findings are robust to a battery of robustness checks.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Mingjing Yang, Xiaoke Cheng, Kam C. Chan, Shenghao Gao,