Joseph Fong

Job Market Candidate: Yes

Research Topics: Finance

Title: Seasoned Equity Offerings and Option Trading by Investment Banks
Supervisors: Ruqu Wang, Frank Milne
Summary: This paper investigates the potential of an investment bank which may make profits in trading options using the information it obtains in the evaluating process of seasoned equity offerings. The manager of a public firm maximizes her current shareholders' wealth by issuing equity either because cash is needed for making a profitable investment or because shares are overvalued. The investment bank is willing to market a bad firm's equity as good quality if the options profits and the issuing fee are larger than the loss it incurs from buying the overvalued shares.