Pseudo Market Timing: Fact or Fiction?

Frank de Jong and Magnus Dahlquist

No 4609, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The average firm going public or issuing new equity underperforms the market in the long run. A potential explanation of this long-run underperformance has to do with the endogeneity of the number of new issues. That is, due to the clustering of events after periods of high abnormal returns in issues, ex post measures of average abnormal returns may be negative on average despite zero ex ante abnormal returns. This could lead one to incorrectly infer underperformance. We provide a thorough evaluation of the endogeneity problem in event studies as it relates to long-run underperformance and undertake both theoretical and simulation analyses. We argue that it is unlikely that the endogeneity of the number of new issues explains the long-run underperformance in equity issuances.

Keywords: Abnormal return measures; Endogenous events; Event studies; Initial public offerings; Long-run underperformance; Pseudo market timing (search for similar items in EconPapers)
JEL-codes: C33 G14 G32 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (3)

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