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Pricing High Growth Firms: Arbitrage Opportunities in the Inc. 100

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Author Info

  • Benoit F. Leleux

    (Babson College)

  • Veronique M. Matthys

    (Babson Colleg)

  • Julian E. Lange

    (Woodland Hill Associates)

Registered author(s):

    Abstract

    The ability of the market to price high growth stocks is examined by analyzing the returns to simple investment portfolio strategies based on public information. The portfolios consist of shares in the firms listed in the Inc. 100 Ranking of the fastest growing public companies in America. The results indicate that significant abnormal returns are generated by these strategies, even after adjusting for risk. Although the tests could potentially be affected by a form of survivorship bias, supplementary analyses indicate that this is unlikely to be the case here. These results support the assumption that markets have difficulties pricing high-growth entities, leaving significant arbitrage opportunities in these stocks and validating the use of various market timing practices.

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    Bibliographic Info

    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial and Small Business Finance.

    Volume (Year): 5 (1996)
    Issue (Month): 1 (Spring)
    Pages: 43-60

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    Handle: RePEc:pep:journl:v:5:y:1996:i:1:p:43-60

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    Web page: http://bschool.pepperdine.edu/jef
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    Related research

    Keywords: Arbitrage; High Growth Firms; Inc 100; Valuation;

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    1. Dimson, Elroy & Marsh, Paul, 1986. "Event study methodologies and the size effect : The case of UK press recommendations," Journal of Financial Economics, Elsevier, Elsevier, vol. 17(1), pages 113-142, September.
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    11. Marshall Blume & Robert Stambaugh, . "Biases in Computed Returns: An Application to the Size Effect (Revision of 2-83)," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 11-83, Wharton School Rodney L. White Center for Financial Research.
    12. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, Elsevier, vol. 8(1), pages 55-69, March.
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