Information Risk and Long-Run Performance of Initial Public Offerings
There has been an extensive debate in financial economics research on long-term abnormal stock returns following firms’ initial public offerings (IPOs). So far, the discussion has concentrated on long-term underperformance. Frank Ecker examines the perfor
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GABLER EDITION WISSENSCHAFT
Frank Ecker
Information Risk and Long-Run Performance of Initial Public Offerings With forewords by Prof. Dr. Hellmuth Milde and Prof. Dr. Per Olsson
GABLER EDITION WISSENSCHAFT
Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Dissertation am Fachbereich IV der Universität Trier, 2005
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Foreword Exactly forty years after Eugene Fama’s (1965) article “The Behavior of Stock Market Prices” (Journal of Business), the play ”Efficient Capital Markets” is still going strong. With his thesis, Frank Ecker is adding a new act to the play: His work is a combination of several new developments on the analytical and empirical capital market research front. Capital market efficiency is based on two aspects. First, the ability of investors to identify a situation in which asset prices are out of the capital market equilibrium. Second, on the possibility of the market to make arbitrage profits by driving the prices back to the equilibrium value. Both aspects are conditional on the set of ”relevant” information. As a result, the basic question is: What is relevant information and how is it processed by investors? This work is building on the concept of information quality, information uncertainty or information risk. Fama’s efficient market hypothesis is just a special case based on the assumption that new information is absolutely correct and completely credible to all investors. In contrast, this work makes use of the more general assumption that new information can be characterized by very different degrees of credibility, or quality. The setting of initial public offerings is chosen as one of the few capital market transactions arguably characterized by high information asymmetry between the firm’s insiders (management) and outsiders (investors). As these investors know that they are at an informational disadvantage, they will only impute an expected and potentially incorrect information risk premium into the stock price. After the IPO, as new information is revealed over time,
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