Long-Horizon Abnormal Performance after Seos Revisited: An Asset Allocation Perspective

51 Pages Posted: 3 Dec 2002

See all articles by Abhay Abhyankar

Abhay Abhyankar

University of Exeter Business School, University of Exeter

Keng-Yu Ho

National Taiwan University

Date Written: October 9, 2002

Abstract

We re-visit the long-horizon underperformance following seasoned equity offerings (SEOs) from an asset allocation perspective. We focus on the economic value, to a mean-variance investor, of investing in a SEO portfolio relative to a set of benchmark portfolios. As a result, we are able to avoid some of the difficulties associated with statistical inference in traditional long-horizon event study methods. Our main results are as follows. Using UK data on SEOs from 1989-1997, we find that, for a mean-variance investor, investing in a SEO portfolio does not lead to a statistically or economically significant enlargement in the investment opportunity set relative to a set of benchmark portfolios. Our results do not change when we relax the assumption of normality of the returns and use GMM-based tests. Second, in contrast to results using event-time and calendar-time abnormal returns, we find no evidence of abnormal performance of the SEO portfolios relative to a set of characteristic based benchmark portfolios using mean-variance intersection tests. Finally, we find similar results even when we allow for time-varying expected returns by incorporating conditioning information. Overall we find that, from an asset allocation perspective, the extent of long-horizon underperformance after SEOs may be overstated.

Keywords: Long-Horizon Abnormal Performance, Seasoned Equity Offerings, Mean-Variance Spanning and Intersection, Asset Allocation, Stochastic Discount Factor

JEL Classification: G12, G14, G30

Suggested Citation

Abhyankar, Abhay and Ho, Keng-Yu, Long-Horizon Abnormal Performance after Seos Revisited: An Asset Allocation Perspective (October 9, 2002). Available at SSRN: https://ssrn.com/abstract=338140 or http://dx.doi.org/10.2139/ssrn.338140

Abhay Abhyankar

University of Exeter Business School, University of Exeter ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

Keng-Yu Ho (Contact Author)

National Taiwan University ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

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