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Department of Finance, Copenhagen Business School Working Paper Series, Department of Finance, Copenhagen Business School

No 2000-2:
Decomposing and testing Long-run Returns with an application to initial public offerings in Denmark

Jan Jakobsen and Ole Sørensen

Abstract: An improved method for measuring and testing long-run returns is proposed. The method adjusts

for the right-skewed distribution of long-run buy-and-hold by decomposing average cross-sectional

buy-and-hold returns into mean components and volatility components. The method is

applied to initial public offerings in Denmark. The mean-component under performance of initial

public offering stocks compared to the market is 30 percent and significant after five years.

Compared to matching firms the under performance of IPO stocks is 13 percent after five years

but insignificant.

Keywords: Market efficiency; initial public offerings; long-run returns; right skewed distributions; testing; volatility filtering.; (follow links to similar papers)

JEL-Codes: G14; G32; (follow links to similar papers)

45 pages, November 1, 1999

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