Pseudo Market Timing: Fact or Fiction?

Magnus Dahlquist () and Frank de Jong
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Magnus Dahlquist: Swedish Institute for Financial Research, Postal: Saltmätargatan 19 A, 4th fl., SE-113 59 Stockholm, Sweden

No 24, SIFR Research Report Series from Institute for Financial Research

Abstract: The average firm going public or issuing new equity has underperformed the market in the long run. Endogeneity of the number of new issues has been proposed as a potential explanation of this long-run underperformance. Under pseudo market timing of new issues, ex post measures of average abnormal returns may be negative on average despite zero ex ante abnormal returns. We show that, under reasonable stationarity assumptions on the process generating events, traditional measures of average abnormal returns are consistent, and the pseudo market timing effect is a small sample problem. In simulations of an empirical model we demonstrate that the bias is small even in moderate sample sizes. An abnormal return measure capturing a feasible investment strategy is not biased. We argue that it is unlikely that pseudo market timing is the explanation for the long-run underperformance in equity issuances.

Keywords: Abnormal return measures; Endogenous events; Event studies; Initial public offerings; Long-run underperformance (search for similar items in EconPapers)
JEL-codes: C33 G14 G32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-06-01
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Pseudo Market Timing: Fact or Fiction? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0024

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