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Pseudo Market Timing: A Reappraisal

Published online by Cambridge University Press:  06 April 2009

Magnus Dahlquist  and
Frank de Jong
Magnus Dahlquist
Affiliation:
[email protected], Institute for Financial Research, Drottninggatan 89, SE 113 60 Stockholm, Sweden and Stockholm School of Economics, Department of Finance, Box 6501, SE 113 83 Stockholm, Sweden
Frank de Jong
Affiliation:
Finance Department, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands.
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Abstract

The average firm going public or issuing new equity underperforms the market in the long run. This underperformance could be related to the endogeneity of the number of new issues if new issues cluster after periods of high abnormal returns on new issues. In such a case, ex post measures of new issue abnormal returns may be negative on average, despite the absence of ex ante abnormal returns. We evaluate this endogeneity problem in event studies of long-run performance. We argue that it is unlikely that the endogeneity of the number of new issues explains the long-run underperformance of equity issues.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 3 , September 2008 , pp. 547 - 579
Copyright
Copyright © School of Business Administration, University of Washington 2008

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