Divergence of Opinion Surrounding Extreme Events

23 Pages Posted: 8 Dec 2005

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Jennifer Marietta-Westberg

U.S. Securities and Exchange Commission

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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.

Suggested Citation

Loughran, Tim and Marietta-Westberg, Jennifer, Divergence of Opinion Surrounding Extreme Events. European Financial Management, Vol. 11, No. 5, pp. 579-601, November 2005, Available at SSRN: https://ssrn.com/abstract=856736 or http://dx.doi.org/10.1111/j.1354-7798.2005.00299.x

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Jennifer Marietta-Westberg

U.S. Securities and Exchange Commission ( email )

100 F St NE
Washington, DC 20549
United States

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