Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Finance

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

Jan Jakobsen and Ole Sørensen
Additional contact information
Jan Jakobsen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Ole Sørensen: Department of Accounting and Auditing, Copenhagen Business School, Postal: Department of Accounting and Auditing,, Copenhagen Business School,, Solbjerg Plads 3, DK-2000 Frederiksberg

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.

JEL-codes: G14; G32

45 pages, November 1, 1999

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