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Is Ipo Underperformance a Peso Problem?

  • Ang, Andrew
  • Gu, Li
  • Hochberg, Yael V.

Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or “Peso 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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Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 42 (2007)
Issue (Month): 03 (September)
Pages: 565-594

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Handle: RePEc:cup:jfinqa:v:42:y:2007:i:03:p:565-594_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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