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Propensity Score Matching and Abnormal Performance After Seasoned Equity Offerings

Xianghong Li
York University - Department of Economics

Shelly Zhao
Kent State University - Department of Finance

October 2005

AFA 2004 San Diego Meetings, Forthcoming

Abstract:
The long-run underperformance of stocks after seasoned equity offerings (SEOs) is a major challenge to the efficient market hypothesis. We reexamine the SEO underperformance anomaly using the propensity score matching method on a sample of around 2000 offerings between 1986 and 1998. While underperformance characterizes equal-weight and buy-and-hold returns if traditional matching methods are used, the underperformance is economically and statistically insignificant when we match issuers to non-issuers by propensity scores. Our results suggest that SEO underperformance manifests statistical inadequacies of traditional matching methods rather than an anomaly challenging the efficient market hypothesis.

Keywords: Seasoned equity offering, long-run performance, propensity score matching

JEL Classifications: G14

Working Paper Series

Date posted: November 26, 2003 ; Last revised: November 17, 2005

Suggested Citation

Li, Xianghong and Zhao, Shelly, Propensity Score Matching and Abnormal Performance After Seasoned Equity Offerings (October 2005). AFA 2004 San Diego Meetings, Forthcoming. Available at SSRN: http://ssrn.com/abstract=451740 or doi:10.2139/ssrn.451740

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Contact Information

Xinlei Zhao (Contact Author) Kent State University - Department of Finance ( email ) College of Business Administration P.O. Box 5190 Kent, OH 44242-0001 United States 330-672-1213 (Phone) 330-672-9806 (Fax)
Xianghong Li York University - Department of Economics ( email ) 4700 Keele St. Vari Hall 1068 Toronto, Ontario M3J 1P3 Canada 416-736-2100 ext. 77036 (Phone)