Assume ABC stock declines by 2 percent following the announcement of a new stock offering.Also assume the prices in the overall market remained steady on the announcement date.ABC's price decline is best categorized as

Question

Quizplus · Accepted Answer

The decline in ABC stock price following the announcement of a new stock offering is not directly related to the expenses of the issue or underpricing. It is also not related to the spread or overallotment cost. Instead, it is an abnormal return, which means that it is a return that is not expected or explained by the usual factors that affect stock returns. In this case, the new stock offering may have caused some investors to sell their existing ABC shares, which led to the price decline.

Assume ABC Stock Declines by 2 Percent Following the Announcement