Pseudo Market Timing: a Reappraisal
41 Pages Posted: 28 Jul 2004 Last revised: 13 Aug 2015
Date Written: December 1, 2006
The average firm going public or issuing new equity underperforms the market in the long run. This underperformance could be related to the endogeneity of the number of new issues, if new issues cluster after periods of high abnormal returns on new issues. In such a case, ex-post measures of new issue abnormal returns may be negative on average, despite the absence of ex-ante abnormal returns. We evaluate this endogeneity problem in event studies of long-run performance. We argue that it is unlikely that the endogeneity of the number of new issues explains the long-run underperformance of equity issues.
Keywords: Abnormal return measures, Endogenous events, Event studies, Initial public offerings, Long-run underperformance
JEL Classification: C33, G14, G32
Suggested Citation: Suggested Citation