Document Type
Working Paper
Publication Date
2000
Abstract
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.
Recommended Citation
Miller, Edward M., "Long run underperformance of initial public offerings: an explanation;" (2000). Department of Economics and Finance Working Papers, 1991-2006. Paper 16.
https://scholarworks.uno.edu/econ_wp/16