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The New Issues Puzzle: Testing the Investment-Based Explanation

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  • Evgeny Lyandres
  • Le Sun
  • Lu Zhang

Abstract

An investment factor, long in low-investment stocks and short in high-investment stocks, helps explain the new issues puzzle. Adding the investment factor into standard factor regressions reduces the SEO underperformance by about 75%, the IPO underperformance by 80%, the underperformance following convertible debt offerings by 50%, and Daniel and Titman's (2006) composite issuance effect by 40%. The reason is that issuers invest more than nonissuers, and the investment factor earns a significantly positive average return of 0.57% per month. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Evgeny Lyandres & Le Sun & Lu Zhang, 2008. "The New Issues Puzzle: Testing the Investment-Based Explanation," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2825-2855, November.
    • Handle: RePEc:oup:rfinst:v:21:y:2008:i:6:p:2825-2855
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    File URL: http://hdl.handle.net/10.1093/rfs/hhm058
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