Divergence of Opinion Surrounding Extreme Events
37 Pages Posted: 29 Jan 2002
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Divergence of Opinion Surrounding Extreme Events
Divergence of Opinion Surrounding Extreme Events
Date Written: January 21, 2005
Abstract
This paper examines the stock market performance of a large sample of new issues (IPOs and SEOs) following an extreme price movement during the first three years after the offering. Strong underperformance follows either a positive or negative (at least +/ 15%) one day return event. This poor performance cannot be explained by the Fama-French four-factor methodology, or by the generally low stock returns of growth firms. Unlike recent issuers, non-issuers report no poor performance following a similar extreme event using the four-factor methodology. The extreme event date shows very high levels of turnover, a measure of divergence of opinion. Finally, there is a strong negative linkage between higher levels of divergence of opinion and subsequent stock performance.
Keywords: IPO, long-run performance, extreme event, divergence of opinion, turnover
JEL Classification: G0
Suggested Citation: Suggested Citation
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