Wealth Gains from Tracking Stocks: Long-Run Performance and Ex-Date Returns
Matthew J. Clayton
University of Virginia - McIntire School of Commerce
University of Iowa - Department of Finance
This paper studies the long-term wealth effects of tracking stocks. We examine the long-run performance of tracking stocks, parent stocks, and the combined firm following the issue of tracking stocks. We also examine the long run performance of firms prior to tracking stock announcements. Using matching portfolios as benchmarks and calculating p-values based on an empirical distribution of mean BHERs via boostrapping, we find none of the long-run performance is significantly different from benchmark returns. We also investigate the ex-date returns for firms issuing tracking stocks. We find a significant ex-date abnormal return of 3.12%. Overall our study suggests that the wealth gains due to the announcement effect are permanent and underestimate the total wealth gains from the issue of tracking stocks.
Number of Pages in PDF File: 43
Keywords: tracking stock, ex-date returns, long-run returns, restructuring
JEL Classification: G14, G34working papers series
Date posted: February 4, 2003
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