Pseudo Market Timing: a Reappraisal

41 Pages Posted: 28 Jul 2004 Last revised: 13 Aug 2015

See all articles by Magnus Dahlquist

Magnus Dahlquist

Stockholm School of Economics; Swedish House of Finance

Frank De Jong

Tilburg University - Department of Finance

Date Written: December 1, 2006

Abstract

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

Dahlquist, Magnus and De Jong, Frank, Pseudo Market Timing: a Reappraisal (December 1, 2006). Journal of Financial and Quantitative Analysis (JFQA), Vol. 43, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=564264 or http://dx.doi.org/10.2139/ssrn.564264

Magnus Dahlquist (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Stockholm, SE-111 60
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Frank De Jong

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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