This paper examines the intraday market response to announcements of new equity issues.
For fifteen minutes following the announcement, there is abnormally high volume and
a -1.3% average return. There is also a small, but significant, negative average
return in the hour before the announcement. Issue size, intended use of proceeds,
and estimated profitability of new investment are uncorrelated with the announcement
effect. After the issuance of new shares, there is a significant price recovery of
1.5%. This evidence is inconsistent with many theoretical rationales for the negative
market reaction to new equity issue announcements.