Propensity Score Matching and Abnormal Performance after Seasoned Equity Offerings
43 Pages Posted: 26 Nov 2003
Date Written: October 2005
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 Classification: G14
Suggested Citation: Suggested Citation