Pseudo Market Timing and the Long-Run Underperformance of Ipos
Posted: 9 Oct 2003
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: Suggested Citation
Schultz, Paul H., Pseudo Market Timing and the Long-Run Underperformance of Ipos. Available at SSRN: https://ssrn.com/abstract=416654
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