Do Designated Sales Agents in ATM Offerings Exploit Post-Earnings-Announcement Drift? Evidence from Real Estate Investment Trusts

Abstract

This paper investigates whether designated sales agents hired to work on the At-the-Market (ATM) offerings act as liquidity traders and arbitrage apparent market inefficiencies such as post-earnings-announcement drift (PEAD). Those sales agents can compete to provide liquidity in the presence of asymmetric information and continuously sell their new equity shares at any time. We find that the supply of liquidity shocks from ATM offerings negatively impacts the cross-section of risk premia. Consistent with the prediction of a dynamic rational expectations model, the well-documented PEAD anomaly disappears in Real Estate Investment Trusts (REITs). When analyzing reversal magnitudes around earnings announcements, we show attenuated return reversals in ATM REITs compared with non-ATM REITs. Furthermore, institutional ownership, institutional herding, and adverse selection cannot explain future returns in firms with good earnings surprises below their expected levels.