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Pricing efficiency of stock rights issues in Malaysia

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dc.contributor.authorMohd Edil Abd Sukor
dc.contributor.authorObiyathulla Ismath Bacha
dc.date.accessioned2016-06-06
dc.date.accessioned2016-07-25T20:05:54Z
dc.date.available2016-06-06
dc.date.available2016-07-25T20:05:54Z
dc.date.disclosure2016-06-10
dc.date.issued2010
dc.description.abstractThis article undertakes an empirical examination of pure rights issues in Malaysia. Though pricing efficiency is the main focus, we also examine related issues. We study a total of 38 pure rights issues that occurred over the 8-year period January 1998 to December 2005. Using two alternative valuation models, the adjusted Black–Scholes Call Option Model (BSOPM) and the traditional Implied Rights Valuation Model (IRVM), we find the Malaysian market to be inefficient in pricing the rights. Mispricing is quite extensive with a predominance of overpricing. Significantly, both pricing models, despite their different theoretical underpinnings produce similar results. These results are further validated by the returns to our two arbitrage strategies. The trading strategy, which establishes a net short position in the rights produces substantial positive returns, whereas the strategy which effectively goes long the rights, produced marginally negative returns. We found underlying stock price volatility, liquidity and moneyness of the rights to be the key determinants of the extent of mispricing. Finally, we find that underlying stock price volatility was significantly lower post rights issue.
dc.identifier.citationAbd Sukor, M. E., & Bacha, O. I. (2010). Pricing efficiency of stock right issues in Malaysia. Applied Financial Economics, 20(22), pp. 1751-1760.
dc.identifier.doihttps://doi.org/10.1080/09603107.2010.524619
dc.identifier.urihttps://ikr.inceif.org/handle/INCEIF/1479
dc.languageEnglish
dc.language.isoeng
dc.publisherRoutledge
dc.rights2010. Routledge
dc.sourceCRP
dc.subjectPricing efficiency
dc.subjectBlack–Scholes Call Option Model (BSOPM)
dc.subjectImplied Rights Valuation Model (IRVM)
dc.subjectMalaysia
dc.titlePricing efficiency of stock rights issues in Malaysia
dc.typeJournal Article
dlc.maintopicConventional finance
dlc.subtopicCapital markets
dspace.entity.typePublication
ikr.doctypeScholarly Works
ikr.topic.maintopicConventional finance
ikr.topic.subtopicConventional finance
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