IPO Vintage and the Rise of Idiosyncratic Risk

35 Pages Posted: 4 Feb 2005

See all articles by Jason Fink

Jason Fink

James Madison University - College of Business

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Kristin Fink

James Madison University - College of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: February 2005

Abstract

This paper presents empirical evidence that the recent rise in idiosyncratic risk is driven by the increasing propensity of firms to issue public equity at an earlier stage in their life cycle. We find that the age of the typical firm at its IPO date has fallen dramatically from nearly 40 years old in the early 1960s to less than 5 years old by the late 1990s. Since younger firms tend to be riskier, this systematic decline in the average age of IPOs, combined with the increasing number of firms going public over the last 30 years, has caused a significant increase in idiosyncratic risk. We show that after controlling for the proportion of young firms in the market, there is no trend in the time series of idiosyncratic risk. Moreover, we find a negative trend in idiosyncratic risk after controlling for other measures of firm maturity.

Suggested Citation

Fink, Jason and Grullon, Gustavo and Fink, Kristin and Weston, James Peter, IPO Vintage and the Rise of Idiosyncratic Risk (February 2005). 7th Annual Texas Finance Festival Paper. Available at SSRN: https://ssrn.com/abstract=661321 or http://dx.doi.org/10.2139/ssrn.661321

Jason Fink

James Madison University - College of Business ( email )

Harrisonburg, VA 22807
United States
540-568-8107 (Phone)

Gustavo Grullon

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

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Kristin Fink

James Madison University - College of Business ( email )

Harrisonburg, VA 22807
United States

James Peter Weston (Contact Author)

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

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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