Working Paper: NBER ID: w8505
Authors: Paul A. Gompers; Josh Lerner
Abstract: Financial economists in recent years have closely examined and intensely debated the performance of initial public offerings using data after the formation of NASDAQ. The paper seeks to shed light on this controversy by undertaking a large, out-of-sample study: we examine the performance for up to five years after listing of nearly 3,661 initial public offerings in the United States from 1935 to 1972. The sample displays some evidence of underperformance when event-time buy-and-hold abnormal returns are used. The underperformance disappears, however, when cumulative abnormal returns are utilized. A calendar-time analysis also shows that over the entire sample period i.e., from 1935 to 1976 IPOs return as much as the market. Finally, the intercepts in CAPM and Fama-French three-factor regressions are insignificantly different from zero suggesting no abnormal performance.
Keywords: No keywords provided
JEL Codes: G24; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| event-time buy-and-hold abnormal returns (G14) | underperformance of IPOs (G24) |
| cumulative abnormal returns (C29) | perceived performance of IPOs (G24) |
| calendar-time analysis (C41) | IPOs return as much as the market (G24) |
| CAPM and Fama-French three-factor regressions (G12) | no abnormal performance (D29) |
| clustering of IPOs before poor performance periods (G14) | misinterpretations of IPO performance (G24) |