Volatility-Adjusted Performance An Alternative Approach to Interpret Long-Run Returns
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.
|Date of creation:||01 Dec 1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +45 3815 3815
Web page: http://www.cbs.dk/departments/finance/Email:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hhs:cbsfin:2000_003. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lars Nondal)
If references are entirely missing, you can add them using this form.