The Nature and Persistence of Initial Public Offering Aftermarket Returns Predictability

The Nature and Persistence of Initial Public Offering Aftermarket Returns Predictability This paper examines the predictability of monthly aftermarket returns of initial public offerings during the first six years of trading. Predictability is tested under the null hypothesis of random walk using a Markov chain analysis. The evidence shows that excess returns of IPOs (adjusted for the return on the equally weighted NASDAQ index) demonstrate non-random walk behavior through the first five years of trading and random walk behavior in the sixth year. This is accompanied by predictability of monthly excess returns conditioned on the two previous months' excess returns. A trading strategy is offered to capitalize on the predictability patterns. Implementing the trading strategy is not possible due to institutional barriers, providing additional explanation for why IPOs do not reach their intrinsic values for extended periods of time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Nature and Persistence of Initial Public Offering Aftermarket Returns Predictability

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008296013545
Publisher site
See Article on Publisher Site

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