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Initial Public Offerings of Ballplayers

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Author Info

  • John D. Burger

    () (Department of Economics, Loyola College in Maryland)

  • Richard D. Grayson
  • Stephen J.K. Walters

    () (Department of Economics, Loyola College in Maryland)

Abstract

As a field study of choice under uncertainty, we examine baseball teams' investments in amateur players. Though most prospects fail to deliver any return on their multi-million dollar signing bonuses, returns on the minority who succeed easily offset these losses: the expected annual yield on the median first-round draftee is 33 percent. However, the pattern of returns is inconsistent with market efficiency. Yields are lower for high schoolers than collegians (27 percent vs. 43 percent), lower for pitchers than position players (24 percent vs. 41 percent), decline for later round long-shots, and may be negative under competitive bidding.

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File URL: http://college.holycross.edu/RePEc/spe/BurgerWalters_IPO.pdf
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Bibliographic Info

Paper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0624.

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Length: 37 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:spe:wpaper:0624

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Web page: http://www.cdes.fr/index.php?id=fr69
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Related research

Keywords: Market efficiency; Bounded rationality; Prospect theory; Winner’s curse;

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References

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  1. Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing and Allocations," Yale School of Management Working Papers ysm258, Yale School of Management, revised 01 Apr 2002.
  2. Daniel R. Marburger, 2004. "Arbitrator Compromise in Final Offer Arbitration: Evidence from Major League Baseball," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 60-68, January.
  3. Ritter, Jay R, 1991. " The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
  4. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
  5. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer, vol. 1(2), pages 163-183, September.
  6. Samuel H. Dinkin & James C. Cox & Vernon L. Smith, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Comment," American Economic Review, American Economic Association, vol. 89(1), pages 319-324, March.
  7. John D. Burger & Stephen J.K. Walters, 2005. "Arbitrator Bias and Self-Interest: Lessons from the Baseball Labor Market," Journal of Labor Research, Transaction Publishers, vol. 26(2), pages 267-280, January.
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