In this study, we employ order imbalance measures to provide evidence that there exists an
individual/institutional dichotomy in reactions to seasoned equity offerings (SEOs). The
normally positive relation between imbalances and returns disappears for trade number
imbalances but remains intact for dollar imbalances following SEOs. Further analysis
supports the notion that small individual investors keep buying SEO stocks actively while
the returns of these stocks reverse in the post-issue period. It seems to take about two
years for individuals to adequately revise their overoptimistic views. Consequently, the
SEO portfolios that individual investors buy on net strongly underperform relative to
industry/size-matching non-issuer portfolios as well as to SEO portfolios that institutional
investors buy on net in the post-issue period.
