The new issues puzzle: testing the investment-based explanation

Evgeny Lyandres, Le Sun, Lu Zhang

Research output: Contribution to journalArticleResearchpeer-review

184 Citations (Scopus)


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 languageEnglish
Pages (from-to)2825-2855
Number of pages31
JournalThe Review of Financial Studies
Issue number6
Publication statusPublished - Nov 2008
Externally publishedYes

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