The new issues puzzle: testing the investment-based explanation

Evgeny Lyandres; Le Sun; Lu Zhang

doi:10.1093/rfs/hhm058

The new issues puzzle: testing the investment-based explanation

Evgeny Lyandres, Le Sun, Lu Zhang

Research output: Contribution to journal › Article › Research › peer-review

173 Citations (Scopus)

Abstract

An investment factor, long in low-investment stocks and short in high-investment stocks, helps explain the new issues puzzle. Adding the investment factor into standard factor regressions reduces the SEO underperformance by about 75%, the IPO underperformance by 80%, the underperformance following convertible debt offerings by 50%, and Daniel and Titmans (2006) composite issuance effect by 40%. The reason is that issuers invest more than nonissuers, and the investment factor earns a significantly positive average return of 0.57% per month.

Original language	English
Pages (from-to)	2825-2855
Number of pages	31
Journal	Review of Financial Studies
Volume	21
Issue number	6
DOIs	https://doi.org/10.1093/rfs/hhm058
Publication status	Published - Nov 2008
Externally published	Yes

Access to Document

10.1093/rfs/hhm058

Link to publication in Scopus

Cite this

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title = "The new issues puzzle: testing the investment-based explanation",

abstract = "An investment factor, long in low-investment stocks and short in high-investment stocks, helps explain the new issues puzzle. Adding the investment factor into standard factor regressions reduces the SEO underperformance by about 75%, the IPO underperformance by 80%, the underperformance following convertible debt offerings by 50%, and Daniel and Titmans (2006) composite issuance effect by 40%. The reason is that issuers invest more than nonissuers, and the investment factor earns a significantly positive average return of 0.57% per month.",

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