Heterogeneous relationship between IPO return and risk across idiosyncratic variance characteristics |
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Authors: | Nancy Beneda Yilei Zhang |
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Affiliation: | Box 7096, Department of Finance, University of North Dakota, Grand Forks, ND 58202, United States |
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Abstract: | This paper analyzes the levels and changes in the post-IPO stock return volatility and provides insights into market responses to the presence of firm-specific risk. First, we document a negative relation between initial idiosyncratic volatility level and the post-IPO volatility change in that initially low volatility firms have more volatility increase and vice verse. This evidence suggests fundamental firm-specific changes after the IPO. Further, we find that underpricing and short-run post-IPO returns are positively related to the initial and corresponding idiosyncratic risk level. This finding suggests that underpricing compensates investors for acquiring costly information and firm-specific risk information is being incorporated into offer prices. Finally, we find that higher long-run post-IPO performance is related to both lower initial risk level and decreasing risk in the first year after the IPO. |
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