Noise Trader and Corporate Financial Strategy

Stock price decreases following equity offerings and increases following stock repurchase, both of which have been identified by empirical studies, which seem If difficult to explain using the efficient markets framework. We can explain those anomalies by examining corporate financial strategies in the limited arbitrage-noise trader model. Our model predicts that the firm experiences P continual stock price decrease following an equity offering, and a continual stock price increase following a stock repurchase, which is consistent with empirical findings.