Initial Public Offerings: An Asset Allocation Perspective

45 Pages Posted: 29 Sep 2004

See all articles by Hsuan-Chi Chen

Hsuan-Chi Chen

Yuan-Ze University - Department of Finance

Keng-Yu Ho

National Taiwan University - Department of Finance

Cheng-Huan Wu

Yuan-Ze University - Department of Finance

Date Written: March 7, 2005

Abstract

We examine whether investors can improve their investment opportunity sets by adding an IPO portfolio to a set of benchmark portfolios sorted by firm size and book-to-market ratio. Using U.S. IPOs from 1980-2002, we find that adding a value-weighted IPO portfolio does lead to a statistically and economically significant enlargement of the investment opportunity set for investors relative to investing solely in a set of benchmark portfolios. This is true even though the portfolio of IPOs from the prior 3 years is only 4% of the market value of non-IPO stocks, on average. Furthermore, IPOs associated with prestigious lead underwriters are the main source of this augmentation of the mean-variance investment opportunity set.

Keywords: Initial Public Offerings, Mean-Variance Spanning Test, Investment Opportunity Set

JEL Classification: G00, G11, G30

Suggested Citation

Chen, Hsuan-Chi and Ho, Keng-Yu and Wu, Cheng-Huan, Initial Public Offerings: An Asset Allocation Perspective (March 7, 2005). Available at SSRN: https://ssrn.com/abstract=594321 or http://dx.doi.org/10.2139/ssrn.594321

Hsuan-Chi Chen (Contact Author)

Yuan-Ze University - Department of Finance ( email )

135 Far-East Rd., Chung-Li 320
Taipei
Taiwan

Keng-Yu Ho

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Cheng-Huan Wu

Yuan-Ze University - Department of Finance ( email )

135 Far-East Rd., Chung-Li 320
Taipei
Taiwan

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