The new issues puzzle revisited: The role of firm quality in explaining IPO returns

We study the risk and return characteristics of IPOs for up to 60 months. After controlling for Asness et al. (2014) quality minus junk factor, IPOs outperform the benchmark portfolios. The previously-documented negative abnormal IPO returns may derive from inaccurate benchmarks. •We test whether th...

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Bibliographic Details
Published in:Economics letters 2017-10, Vol.159, p.88-91
Main Authors: Blomkvist, Magnus, Korkeamäki, Timo, Pettersson, John
Format: Article
Language:English
Subjects:
Economics and Finance
Firm quality
Humanities and Social Sciences
Initial public offerings
IPOs
Long-run performance
Portfolios
Risk
Studies
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Summary:We study the risk and return characteristics of IPOs for up to 60 months. After controlling for Asness et al. (2014) quality minus junk factor, IPOs outperform the benchmark portfolios. The previously-documented negative abnormal IPO returns may derive from inaccurate benchmarks. •We test whether the QMJ factor affects IPO returns.•We find that high IPO volumes occur during times of low quality spreads.•Once we control for the QMJ factor, the IPO firms generate positive alphas.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2017.07.022