TAILIEUCHUNG - Long-run Stock Performance of German Initial Public Offerings and Sea- soned Equity Issues

In this paper we come closer to this strategy as we test the hypothesis that a linear combination of selected past idiosyncratic shocks recorded by the equity price of a given firm helps track and forecast aggregate business cycle fluctuations. At this stage we like to anticipate, however, that, somewhat against the benefit achieved by pooling many forecasts suggested by this strand of literature, our conclusions are that pooling individual information does not typically represent a good alternative to a situation in which instead a small number of regressors (. a subset of the full information set whose composition changes over time) are selected according to. | Long-run Stock Performance of German Initial Public Offerings and Seasoned Equity Issues Richard Stehle Olaf Ehrhardt Humboldt-Universitat zu Berlin Institut fur Bank- Bor sen- und Versicherungswesen Spandauer Strafe 1 D-10178 Berlin Germany email stehle@ ehrhardt@ and René Przyborowsky SGZ-Bank Bockenheimer Anlage 46 D-60322 Frankfurt Main Germany email Abstract We estimate the long-run stock performance after initial public offerings IPOs in the German capital market with a larger sample than prior studies and alternative benchmarks the equally and the value-weighted market portfolio size portfolios and matching stocks . In addition we present the first results on the long-run performance after seasoned equity issues SEOs in Germany. We conclude that size portfolios and matching stocks are better benchmarks than market portfolios. Using buy-and-hold abnormal returns we estimate that German stocks involved in an IPO or in a SEO on the average underperform a portfolio consisting of stocks with a similar market capitalization by 6 in three years. This is considerably less than the underperformance after IPOs and SEOs in the US market reported by Loughran Ritter 1995 and the underperformance after IPOs in Germany reported by Ljungqvist 1997 . We also show that the apparent underperformance of the 1988-1990 IPO cohort discussed by Ljungqvist 1997 disappears when the abnormal performance estimate is based on size instead of market portfolios. Keywords Initial public offerings Seasoned equity issues Long-run stock performance Market efficiency German stock market JEL classification G14 G12 G15 This version has been accepted for publication in the European Financial Management Journal. 1 1. Introduction If markets are efficient the abnormal performance of stocks after firm-specific events should be neutral once the event-related activities have been fully completed. Starting with Ritter 1991 a series of .

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