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 |
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Pages (from-to) | 2825-2855 |
Number of pages | 31 |
Journal | The Review of Financial Studies |
Volume | 21 |
Issue number | 6 |
DOIs | |
Publication status | Published - Nov 2008 |
Externally published | Yes |