TY  - JOUR
AU  - Lucas,Deborah J.
AU  - McDonald,Robert L.
TI  - Equity Issues and Stock Price Dynamics
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3169
PY  - 1991
Y2  - February 1991
UR  - http://www.nber.org/papers/w3169
L1  - http://www.nber.org/papers/w3169.pdf
N1  - Author contact info:
Deborah J. Lucas
MIT Sloan School of Management
100 Main Street, E62-640
Cambridge, MA 02142
Tel: 617/715-4816
E-Mail: dlucas@mit.edu

Robert L. McDonald
Department of Finance  Jacobs Center
Northwestern University
2001 Sheridan Rd.
Evanston, IL  60208-2006
Tel: 847-491-8344
Fax: 847-491-5719
E-Mail: r-mcdonald@northwestern.edu
AB  - This paper presents an information-theoretic, infinite horizon model of the equity issue decision. The model's predictions about stock price behavior and issue timing explain most of the stylized facts in the empirical literature: (a) equity issues on average are preceded by an abnormal positive return on the stock, although there is considerable variation across firms, (b) equity issues on average are preceded by an abnormal rise in the market, and (c) the stock price drops significantly at the announcement of an issue. In this model, the price drop at issue announcement is uncorrelated with the social cost of suboptimal investment due to asymmetric information; the welfare loss may be small even if the price drop is large. 
ER  -