DIVERGENCE OF OPINION AND LONG-RUN PERFORMANCE OF PRIVATE PLACEMENTS: EVIDENCE FROM THE AUCTION MARKET

In this article, we propose and construct a direct measure of investors' divergence of opinion based on auction bids data from private placements in China. We find that firms with higher bids dispersion generate lower long-run stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount, earnings management, alternative dispersion measures, and self-selection bias. Moreover, this negative relation is stronger for stocks with more stringent short-sale constraints. Our findings therefore provide strong evidence for the overvaluation hypothesis.