Spin-Offs, Ex Ante
Cusatis, Miles, and Woolridge (1993) report large positive excess returns following spin-offs over the period 1965-88. We investigate whether a trading strategy based on this ex post analysis would have earned excess returns on an ex ante basis over the period 1989-95. When compared with the matched firm benchmark used by Cusatis et al. and the Fama and French (1993) 3-factor model, the strategy does not beat the benchmark. When compared with size- and book-to-market-matched portfolios, the strategy typically beats the benchmark. On an ex ante basis, post-spin-off returns provide a shaky basis for rejecting the efficient market hypothesis. Copyright 2001 by University of Chicago Press.