Is IPO Underperformance a Peso Problem?

42 Pages Posted: 12 Apr 2004

See all articles by Andrew Ang

Andrew Ang

BlackRock, Inc

Li Gu

Columbia University

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2005

Abstract

Recent studies suggest that the underperformance of IPO's in the post-1970 sample may be a small sample effect or Peso problem. That is, IPO underperformance may be due to observing too few star performers ex-post than were expected ex-ante. We develop a model of IPO performance that captures this intuition, by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performance. We estimate the model under the null of no ex-ante average IPO underperformance to construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data.

Keywords: IPO, long-run performance, small sample inference, peso problem

JEL Classification: G12, G14, G32

Suggested Citation

Ang, Andrew and Gu, Li and Hochberg, Yael V., Is IPO Underperformance a Peso Problem? (October 25, 2005). Available at SSRN: https://ssrn.com/abstract=527642 or http://dx.doi.org/10.2139/ssrn.527642

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Li Gu (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
612
Abstract Views
3,901
Rank
76,025
PlumX Metrics