Characterizing the Risk of IPO Long-Run Returns: The Impact of Momentum, Liquidity, Skewness, and Investment
نویسندگان
چکیده
We study 6,686 IPOs spanning the period 1981-2005 and find that the new issues puzzle disappears in a Fama-French three-factor framework. IPOs do not underperform in the aftermarket on a risk-adjusted basis and do not underperform a matched sample of non-issuers. IPO underperformance is concentrated in the 1980’s and early 1990’s, and IPO’s either perform the same as the market, or outperform on a risk-adjusted basis, during 1998-2005. We attribute this to the recent shift to alternative offering mechanisms. Factors for momentum, investment, and liquidity help to explain aftermarket returns, whereas skewness does not. IPO investors receive smaller expected returns due to negative momentum and investment exposure and in exchange for higher liquidity.
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