The diversification effects of initial public offerings

Hsuan Chi Chen, Keng Yu Ho, Yu Jen Hsiao, Cheng Huan Wu

研究成果: 雜誌貢獻文章同行評審

摘要

A firm's stock becomes publicly tradable through an initial public offering (IPO). This study suggests a portfolio diversification perspective to explore IPOs. We examine whether investors can gain diversification benefits by adding an IPO portfolio to a set of benchmark portfolios sorted by firm size and book-to-market ratio. Using US IPOs from 1980-2002, we find that adding a value-weighted IPO portfolio does lead to a statistically and economically significant enlargement of the investment opportunity set for investors relative to investing solely in a set of benchmark portfolios. Specifically, the Sharpe ratio of the tangency portfolio increases by 5.50% on average after including IPO stocks. Furthermore, IPOs associated with prestigious lead underwriters are the main source of this augmentation of the mean-variance investment opportunity set. Finally, our study implies that issuing IPO exchange traded funds or similar products can provide diversification gains to investors.

原文英語
頁(從 - 到)171-205
頁數35
期刊Journal of Business Finance and Accounting
37
發行號1-2
DOIs
出版狀態已發佈 - 一月 1 2010
對外發佈Yes

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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