Returns to style investments in initial public offerings

Kojo Menyah, Krishna Paudyal

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Security selection using style analysis is common practice among fund managers and individual investors. Style-based investments are not new, but their rationale derives from the perceived wisdom of practitioners and empirical evidence rather than from formal theoretical modeling. This chapter examines the aftermarket performance of initial public offering (IPO) by using style stock selection methods. It analyzes value, growth, small-cap, and large-cap style IPO portfolios, as well as combinations of these style categories. Holding period returns for value versus growth IPOs, small-cap versus large-cap IPOs, and IPOs marketed by high-quality underwriters versus those marketed by low-quality underwriters are compared. Several conclusions emerge from the comparison of returns of these style portfolios after controlling for risk. First, the value and growth IPOs do not exhibit statistically significant differences in returns for all holding periods. Second, the large-cap IPO portfolio outperforms the small-cap portfolio for up to 4-year holding periods. Third, IPOs sponsored by high-quality underwriters provide significantly higher returns than IPOs marketed by low-quality underwriters. However, after controlling for the quality of the underwriter, value and small-cap IPOs marketed by prestigious underwriters provide significantly higher and positive aftermarket returns.

LanguageEnglish
Title of host publicationInitial Public Offerings
Subtitle of host publicationAn International Perspective
EditorsGreg N. Gregoriou
Place of PublicationOxford
Chapter2
Pages13-28
Number of pages16
DOIs
Publication statusPublished - 14 Dec 2005

Fingerprint

Initial public offerings
Underwriters
Investment style
Style analysis
Security selection
Modeling
Aftermarket performance
Empirical evidence
Stock selection
Wisdom
Individual investors
Aftermarket
Rationale
Fund managers

Keywords

  • initial public offering (IPO)
  • style stock selection methods
  • returns

Cite this

Menyah, K., & Paudyal, K. (2005). Returns to style investments in initial public offerings. In G. N. Gregoriou (Ed.), Initial Public Offerings: An International Perspective (pp. 13-28). Oxford. https://doi.org/10.1016/B978-075067975-6.50005-0
Menyah, Kojo ; Paudyal, Krishna. / Returns to style investments in initial public offerings. Initial Public Offerings: An International Perspective. editor / Greg N. Gregoriou. Oxford, 2005. pp. 13-28
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Menyah, K & Paudyal, K 2005, Returns to style investments in initial public offerings. in GN Gregoriou (ed.), Initial Public Offerings: An International Perspective. Oxford, pp. 13-28. https://doi.org/10.1016/B978-075067975-6.50005-0

Returns to style investments in initial public offerings. / Menyah, Kojo; Paudyal, Krishna.

Initial Public Offerings: An International Perspective. ed. / Greg N. Gregoriou. Oxford, 2005. p. 13-28.

Research output: Chapter in Book/Report/Conference proceedingChapter

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Menyah K, Paudyal K. Returns to style investments in initial public offerings. In Gregoriou GN, editor, Initial Public Offerings: An International Perspective. Oxford. 2005. p. 13-28 https://doi.org/10.1016/B978-075067975-6.50005-0