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Long run underperformance of initial public offerings: an explanation


  • Miller, Edward M.

    (University of New Orleans)


Initial public offerings, even though risky, typically underperform the indices for the first few years after offering. This can be explained by high divergence of opinion raising the initial market price, and by this divergence of opinion declining over time. With time, the valuation of the price setting marginal investor comes closer to the average investor’s valuation. This theory also explains why the firms with the greatest underperformance are those with a short operating history, low sales, low prestige underwriters, low institutional ownership, high volatility, high underpricing at the time of issuance, listing on regional exchanges, and those in certain industries.

Suggested Citation

  • Miller, Edward M., 2000. "Long run underperformance of initial public offerings: an explanation," Working Papers 1999-18, University of New Orleans, Department of Economics and Finance.
  • Handle: RePEc:uno:wpaper:1999-18

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    More about this item


    Initial public offering (IPO); Investors; Market valuation;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage


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