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Volatility-Adjusted Performance An Alternative Approach to Interpret Long-Run Returns

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Author Info
Jakobsen, Jan (Department of Finance, Copenhagen Business School)
Voetmann, Torben (Department of Finance, Copenhagen Business School)

Additional information is available for the following registered author(s):

Abstract

This paper investigates long-run returns by utilizing log-normal distribution properties

of cross-sectional buy-and-hold returns. We decompose expected cross-sectional buy-and-

hold returns into transformed mean components and volatility components. This

decomposition shows that the volatility component contributes positively to the right-skewed

buy-and-hold returns due to Jensen's inequality. Given the log-normal distri-bution

properties are fulfilled, the method can be applied to any type of long-horizon

event study of security performance. We apply the method to IPO stocks and SEO

stocks listed on the Copenhagen Stock Exchange. Using traditional standard tech-niques,

we find that IPO stocks and SEO stocks under perform relative to the market

after five years by 27.3 percent and 21.4 percent, respectively. However, the volatility-adjusted

performance measure shows that the IPO stocks and SEO stocks under per-form

relative to the market after five years by 43.7 percent and 38.1 percent, respec-tively.

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File URL: http://openarchive.cbs.dk/cbsweb/handle/10398/7177
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Publisher Info
Paper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2000-3.

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Length: 38 pages
Date of creation: 01 Dec 1999
Date of revision:
Handle: RePEc:hhs:cbsfin:2000_003

Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Email:
Web page: http://www.cbs.dk/departments/finance/
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Related research
Keywords: Wealth relatives; buy-and-hold returns; equity offerings;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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