Events and Price Adjustment Accuracy: Evidence from Post-IPO Market
45 Pages Posted: 16 Jun 2008 Last revised: 4 Aug 2009
Date Written: August 4, 2009
We use the post-IPO market to examine this accuracy of price adjustment to new information. The unique setting of immediate aftermarket allows us to assess subject after the trading has just begun and investors possess little information about stock return properties. They are, therefore, likely to misinterpret firm-specific information in the immediate aftermarket. As time since the IPO elapses, investors accumulate more information, and price reaction to new events becomes more accurate. We show that the accuracy of price adjustment increases by 14% in the first year of trading for all events, and by as much as 26% for public events. We conclude that the incorporation of new information into stock prices becomes more accurate as stocks season.
Keywords: Events, IPO, After-market, Efficiency
JEL Classification: G14
Suggested Citation: Suggested Citation