IPO Post-Issue Markets: Questionable Predilections But Diligent Learners?
- Creators
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Bossaerts, Peter
- Hillion, Pierre
Abstract
There appear to be no anomalies in the aftermarket of a sample of 4,848 U.S. IPOs over the period 1975 to 1995, except issues offered below $6. Risk is priced in the aftermarket in accordance with Rubin-stein's asset-pricing model. Unlike under the efficient markets hypothesis (EMH), however, market priors about the probability of future default are not unbiased at the IPO date. Still, subsequent learning is rational: the market uses Bayes' law with a correct-likelihood function (of news given the eventual fate of an issue). That is, the hypothesis of an efficiently learning market (ELM) cannot be rejected. We produce direct evidence in support of these statements, based on a new class of tests. We also provide indirect evidence, by documenting a gradual convergence of IPO prices towards EMH as issues mature.
Additional Information
© 2001 President and Fellows of Harvard College and the Massachusetts Institute of Technology. Received for publication July 8, 1998. Revision accepted for publication May 23, 2000. California Institute of Technology and CEPR, and INSEAD and CEPR, respectively. Thanks to Jay Ritter and Jos van Bommel for making available their data sets. This version benefitted from many suggestions and comments during seminars at U.C.L.A., U.C. Riverside, U.S.C., the University of Utah, and the 1998 WFA and SFA meetings. Kathy Dewenter's discussion at the 1998 Western Finance Association meetings were insightful. In addition, conversations with and suggestions from Doug Hensler, Roger Ibbotson, Richard Roll, Jos Van Bommel, Ivo Welch, John Campbell (the editor), and two anonymous referees were very helpful. The usual disclaimer applies. Earlier versions were based only on Ritter's sample. During the review process, we were asked to expand the data set. Hence, the article is based on a sample that is three times larger than Ritter's. Although risk adjustment became necessary, the conclusions from the larger sample substantially confirmed the earlier findings.Attached Files
Published - 00346530151143860.pdf
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Additional details
- Eprint ID
- 80782
- Resolver ID
- CaltechAUTHORS:20170825-064507545
- Created
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2017-08-28Created from EPrint's datestamp field
- Updated
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2021-11-15Created from EPrint's last_modified field