Pseudo Market Timing and the Long-Run Underperformance of Ipos

Posted: 9 Oct 2003

See all articles by Paul H. Schultz

Paul H. Schultz

University of Notre Dame - Department of Finance

Abstract

Numerous studies document long-run underperformance by firms following equity offerings. This paper shows that underperformance is very likely to be observed ex-post in an efficient market. The premise is that more firms issue equity at higher stock prices even though they cannot predict future returns. Ex-post, issuers seem to time the market because offerings cluster at market peaks. Simulations based on 1973 through 1997 data reveal that when expected abnormal returns are zero, median ex-post underperformance for equity issuers will be significantly negative in event-time. Using calendar-time returns solves the problem.

Suggested Citation

Schultz, Paul H., Pseudo Market Timing and the Long-Run Underperformance of Ipos. Available at SSRN: https://ssrn.com/abstract=416654

Paul H. Schultz (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
219-631-3338 (Phone)
219-631-5255 (Fax)

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