Is IPO Underperformance a Peso Problem?

Andrew Ang*, Li Gu, Yael V. Hochberg

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

Recent studies suggest that the underperformance of IPOs in the post-1970 sample may be a small sample effect or "Peso problem." That is, IPO underperformance may result from observing too few star performers ex post than were expected ex ante. We develop a model of IPO performance that captures this intuition by allowing returns to be drawn from mixtures of outstanding, benchmark, or poor performing states. We estimate the model under the null of no ex ante average IPO underperformance and construct small sample distributions of various statistics measuring IPO relative performance. We find that small sample biases are extremely unlikely to account for the magnitude of the post-1970 IPO underperformance observed in data. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION, UNIVERSITY OF WASHINGTON.

Original languageEnglish (US)
Pages (from-to)565-594
Number of pages30
JournalJournal of Financial and Quantitative Analysis
Volume42
Issue number3
DOIs
StatePublished - Sep 2007

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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