IPO Post-Issue Markets: Questionable Predilections But Diligent Learners?

Peter Bossaerts () and Pierre Hillion

No 1014, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

Abstract: Efficiency in the IPO (Initial Public Offering) aftermarket is tested without imposing any restrictions on the priors about potential default at the issue date. Merging Ritter's extended dataset (which covers the period 1975-84) with the CRSP tapes, IPOs are followed up to ten years after issue. Across all IPOs, or when stratifying IPOs according to issue underpricing, industry affiliation or rank of entry in an industry, little evidence against rational price behavior is found. In contrast, the market clearly over-reacts to information about the eventual fate of low-priced issues. A suggestive relationship between irrational price behavior and subsequent takeover activity is uncovered.

Keywords: Initial Public Offering; Market Efficiency; Rational Learning; Default (search for similar items in EconPapers)
Pages: 48 pages
Date: 1997-08
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Journal Article: Ipo Post-Issue Markets: Questionable Predilections But Diligent Learners? (2001)
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