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A multiperiod evaluation of returns following seasoned equity offerings

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  • Bayless, M.
  • Jay, N.
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    Abstract

    In this paper, we argue that the evaluation of returns following an equity issue has been hampered by a narrow focus on the period immediately following the issue. We relax this constraint and compare the risk-adjusted performance of firms following an equity issue with their performance during periods when there was no issue activity. We employ this methodology in a calendar-time framework along with a six-factor-generating model of expected returns and a matched sample of non-issuing firms. Our results indicate that the six-factor model of expected returns cannot explain firm's underperformance following an issue as suggested by Eckbo, E., Masulis, R., and Norli, O. [(2000). Seasoned public offerings: Resolution of the 'New issues puzzle. Journal of Financial Economics, 56, 251-291]. Our approach also produces new empirical evidence that weak returns following an equity issue are consistent with pseudo market timing by issuing firms as argued by Schultz [Schultz, P. (2003). Pseudo market timing and the long-run underperformance of IPO's. Journal of Finance, 58, 483-517; Schultz, P. (2004). Pseudo market timing and the stationarity of the event-generating process (Working Paper). University of Norte Dame].

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 60 (2008)
    Issue (Month): 4 ()
    Pages: 291-311

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    Handle: RePEc:eee:jebusi:v:60:y:2008:i:4:p:291-311

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    Web page: http://www.elsevier.com/locate/jeconbus

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    References

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    22. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
    23. Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 38(3), pages 243-267, July.
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