Is IPO Underperformance a Peso Problem?

Andrew Ang, Li Gu and Yael V. Hochberg

No 12203, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or "Peso" problem. That is, IPO underperformance may result from observing too few star performers ex-post than were expected ex-ante. We develop a model of IPO performance that captures this intuition by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performing states. We estimate the model under the null of no ex-ante average IPO underperformance and construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data.

JEL-codes: G12 G14 G32 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-cfn, nep-fin, nep-fmk and nep-his
Note: AP
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Published as Ang, Andrew, Li Gu and Yael Hochberg. “Is IPO Underperformance a Peso Problem?” Journal of Financial and Quantitative Analysis 42, 3 (2007): 565-594.

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