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Initial Public Offerings of Ballplayers

Author

Listed:
  • 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.

Suggested Citation

  • John D. Burger & Richard D. Grayson & Stephen J.K. Walters, 2006. "Initial Public Offerings of Ballplayers," Working Papers 0624, International Association of Sports Economists;North American Association of Sports Economists.
  • Handle: RePEc:spe:wpaper:0624
    as

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    File URL: http://web.holycross.edu/RePEc/spe/BurgerWalters_IPO.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    4. Anthony Krautmann, 2009. "Market size and the demand for talent in major league baseball," Applied Economics, Taylor & Francis Journals, vol. 41(25), pages 3267-3273.
    5. 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.
    6. 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.
    7. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages 251-278, October.
    8. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer;Economic Science Association, vol. 1(2), pages 163-183, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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