Hostname: page-component-745bb68f8f-s22k5 Total loading time: 0 Render date: 2025-01-20T18:07:03.211Z Has data issue: false hasContentIssue false
  • English
  • Français

Is Ipo Underperformance a Peso Problem?

Published online by Cambridge University Press:  06 April 2009

Andrew Ang ,
Li Gu  and
Yael V. Hochberg
Andrew Ang
Affiliation:
[email protected], Columbia Business School, 3022 Broadway, 805 Uris, New York, NY 10027
Li Gu
Affiliation:
[email protected], Graduate School of Business 403A, Fordham University, 113 West 60th St., New York, NY 10023
Yael V. Hochberg
Affiliation:
[email protected], Kellogg School of Management, Northwestern University, 2001 Sheridan Rd., Evanston, IL 60208.
Get access Rights & Permissions [Opens in a new window]

Abstract

Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or “Peso problem.” That is, IPO underperformance may result from observing too few star performers ex post than were expected ex ante. We develop a model of IPO performance that captures this intuition by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performing states. We estimate the model under the null of no ex ante average IPO underperformance and construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 3 , September 2007 , pp. 565 - 594
Copyright
Copyright © School of Business Administration, University of Washington 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Albert, J. H., and Chib, S.. “Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts.” Journal of Business and Economic Statistics, 11 (1993), 1–15.Google Scholar
Ang, A., and Bekaert, G.. “Regime Switching in Interest Rates.” Journal of Business and Economic Statistics, 20 (2002), 163–182.CrossRefGoogle Scholar
Barber, B. M., and Lyon, J. D.. “Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics.” Journal of Financial Economics, 43 (1997), 341–372.CrossRefGoogle Scholar
Bekaert, G.; Erb, C.; Harvey, C. R.; and Viskanta, T.. “Distributional Characteristics of Emerging Market Returns and Asset Allocation.” Journal of Portfolio Management, 24 (1998), 102–116.CrossRefGoogle Scholar
Bekaert, G.; Hodrick, R. J.; and Marshall, D. A.. “Peso Problem Anomalies for Term Structure Anomalies.” Journal of Monetary Economics, 48 (2001), 241–270.CrossRefGoogle Scholar
Brav, A. “Inference in Long-Horizon Event Studies: A Bayesian Approach with Applications to Initial Public Offerings.” Journal of Finance, 55 (2000), 1979–2016.CrossRefGoogle Scholar
Brav, A.; Geczy, C.; and Gompers, P. A.. “Is the Abnormal Return Following Equity Issuances Anomalous?” Journal of Financial Economics, 56 (2000), 209–249.CrossRefGoogle Scholar
Brav, A., and Gompers, P. A.. “Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies.” Journal of Finance, 52 (1997), 1791–1821.Google Scholar
Carter, C. K., and Kohn, R.. “On Gibbs Sampling for State Space Models.” Biometrika, 81 (1994), 541–553.CrossRefGoogle Scholar
Cecchetti, S. G.; Lam, P.; and Mark, N. C.. “The Equity Premium and the Risk-Free Rate: Matching the Moments.” Journal of Monetary Economics, 31 (1993), 21–46.CrossRefGoogle Scholar
Conrad, J., and Kaul, G.. “Long-Term Market Overreaction or Biases in Computed Returns?” Journal of Finance, 48 (1993), 39–63.Google Scholar
Dahlquist, M., and de Jong, F.. “Pseudo Market Timing: Fact or Fiction?” Working Paper, Stockholm Institute for Financial Research (2003).Google Scholar
Davies, R. B. “Hypothesis Testing when a Nuisance Parameter is Present only under the Alternative.” Biometrika, 74 (1987), 1, 33–43.Google Scholar
Eckbo, B. E.; Masulis, R. W.; and Norli, O.. “Seasoned Public Offerings: Resolution of the ‘New Issues Puzzle’.” Journal of Financial Economics, 56 (2000), 251–291.CrossRefGoogle Scholar
Eckbo, B. E., and Norli, O.. “Leverage, Liquidity and Long-Run IPO Returns.” Journal of Corporate Finance, 11 (2005), 1–35.CrossRefGoogle Scholar
Evans, M. D. D. “Peso Problems: Their Theoretical and Empirical Implications.” In Handbook of Statistics: Statistical Methods in Finance, Maddala, G. S. and Rao, C. R., eds. Amsterdam, The Netherlands: North Holland (1996).Google Scholar
Evans, M. D. D., and Lewis, K. K.. “Do Long-Term Swings in the Dollar Affect Estimates of the Risk Premia?” Review of Financial Studies, 8 (1995), 709–742.CrossRefGoogle Scholar
Fama, E., and French, K.. “Common Risk Factors in the Returns on Stock and Bonds.” Journal of Financial Economics, 33 (1993), 3–56.CrossRefGoogle Scholar
Gompers, P. A., and Lerner, J.. “The Really Long-Run Performance of Initial Public Offerings: The Pre-Nasdaq Evidence.” Journal of Finance, 58 (2003), 1355–1392.CrossRefGoogle Scholar
Hamilton, J. D. “A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle.” Econometrica, 57 (1989), 357–384.CrossRefGoogle Scholar
Hamilton, J. D., and Lin, G.. “Stock Market Volatility and the Business Cycle.” Journal of Applied Econometrics, 11 (1996), 573–593.3.0.CO;2-T>CrossRefGoogle Scholar
Hamilton, J. D., and Susmel, R.. “Autoregressive Conditional Heteroskedasticity and Changes in Regime.” Journal of Econometrics, 64 (1994), 307–333.CrossRefGoogle Scholar
Hirshleifer, D. “Investor Psychology and Asset Pricing.” Journal of Finance, 56 (2001), 1533–1597.Google Scholar
Kass, R. E., and Raftery, A. E.. “Bayes Factors.” Journal of the American Statistical Association, 90 (1995), 773–795.CrossRefGoogle Scholar
Kim, C. J., and Nelson, C. R.. State-Space Models with Regime Switching: Classical and Gibbs Sampling Approaches with Applications. Cambridge, MA: MIT Press (1999).Google Scholar
Kim, C. J.; Nelson, C. R.; and Startz, R.. “Testing for Mean Reversion in Heteroskedastic Data Based on Gibbs-Sampling-Augmented Randomization.” Journal of Empirical Finance, 5 (1998), 131–154.CrossRefGoogle Scholar
Kothari, S. P., and Warner, J. B.. “Measuring Long-Horizon Security Price Performance.” Journal of Financial Economics, 43 (1997), 301–339.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “The New Issues Puzzle.” Journal of Finance, 50 (1995), 23–51.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “Uniformly Least Powerful Tests of Market Efficiency.” Journal of Financial Economics, 55 (2000), 361–389.CrossRefGoogle Scholar
Miller, M. H. “Debt and Taxes.” Journal of Finance, 32 (1977), 261–275.Google Scholar
Newey, W. K., and West, K. D.. “A Simple Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703–708.CrossRefGoogle Scholar
Perez-Quiros, G., and Timmermann, A.. “Firm Size and Cyclical Variations in Stock Returns.” Journal of Finance, 55 (2000), 1229–1262.CrossRefGoogle Scholar
Ramchand, L., and Susmel, R.. “Volatility and Cross Correlation across Major Stock Markets.” Journal of Empirical Finance, 5 (1998), 397–416.CrossRefGoogle Scholar
Rietz, T. A. “The Equity Risk Premium: A Solution.” Journal of Monetary Economics, 22 (1988), 117–131.CrossRefGoogle Scholar
Ritter, J. R. “The Long-Run Performance of Initial Public Offerings.” Journal of Finance, 46 (1991), 3–27.Google Scholar
Ritter, J. R., and Welch, I.. “A Review of IPO Activity, Pricing and Allocations.” Journal of Finance, 57 (2002), 1795–1828.CrossRefGoogle Scholar
Schultz, P. “Pseudo Market Timing and the Long-Run Underperformance of IPOs.” Journal of Finance, 58 (2003), 483–517.CrossRefGoogle Scholar
Shumway, T. “The Delisting Bias in CRSP Data.” Journal of Finance, 52 (1997), 327–340.CrossRefGoogle Scholar
Shumway, T., and Warther, V. A.. “The Delisting Bias in CRSP's Nasdaq Data and Its Implications for the Size Effect.” Journal of Finance, 54 (1999), 2361–2379.CrossRefGoogle Scholar
Teoh, S.; Welch, I.; and Wong, T.. “Earnings Management and the Long-Run Market Performance of Initial Public Offerings.” Journal of Finance, 53 (1998), 1935–1974.CrossRefGoogle Scholar
Timmermann, A. “Moments of Markov Switching Models.” Journal of Econometrics, 96 (2000), 75–111.CrossRefGoogle Scholar
Turner, C. M.; Startz, R.; and Nelson, C. R.. “A Markov Model of Herteroskedasticity, Risk, and Learning in the Stock Market.” Journal of Financial Economics, 25 (1989), 3–22.CrossRefGoogle Scholar
Viswanathan, S., and Wei, B.. “Endogenous Events and Long Run Returns.” Working Paper, Duke University (2004).Google Scholar