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Is IPO Underperformance a Peso Problem?

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  • Andrew Ang
  • Li Gu
  • Yael V. Hochberg

Abstract

Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or %u201CPeso%u201D problem. That is, IPO underperformance may result from observing too few star performers ex-post than were expected ex-ante. We develop a model of IPO performance that captures this intuition by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performing states. We estimate the model under the null of no ex-ante average IPO underperformance and construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12203.

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Date of creation: May 2006
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Publication status: published as Ang, Andrew, Li Gu and Yael Hochberg. “Is IPO Underperformance a Peso Problem?” Journal of Financial and Quantitative Analysis 42, 3 (2007): 565-594.
Handle: RePEc:nbr:nberwo:12203

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Cited by:
  1. Karen K. Lewis, 2011. "Global asset pricing," Globalization and Monetary Policy Institute Working Paper 88, Federal Reserve Bank of Dallas.
  2. Chi, Jing & McWha, Matthew & Young, Martin, 2010. "The performance and the survivorship of New Zealand IPOs," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 172-180, June.

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