Bradford D. Jordan

Partial Adjustment to Public Information and IPO Underpricing

We examine the extent to which offer prices reflect public information for 3,325 IPOs over the period 1990–1999. We focus primarily on four variables: share overhang, file range amendments, venture capital backing, and previous issue underpricing. We show that 35%–50% of the variation in IPO underpricing can be predicted using public information known before the offer date and therefore conclude that IPO offer prices underadjust to widely available public information to a much greater extent than previously documented.

The Quiet Period Goes out with a Bang

We examine the expiration of the IPO quiet period, which occurs after the 25th calendar day following the offering. For IPOs during 1996 to 2000, we find that analyst coverage is initiated immediately for 76 percent of these firms, almost always with a favorable rating. Initiated firms experience a five-day abnormal return of 4.1 percent versus 0.1 percent for firms with no coverage. The abnormal returns are concentrated in the days just before the quiet period expires. Abnormal returns are much larger when coverage is initiated by multiple analysts. It does not matter whether a recommendation comes from the lead underwriter or not.

Seasonality in Daily Bond Returns

This paper tests for seasonal patterns in corporate bond returns using the Dow Jones Composite Bond Average. Each seasonal pattern documented for equities is investigated. For the period 1963–1986, corporate bond returns exhibit January, turn-of-the-year, and weekof-the-month effects, but no significant day-of-the-week or turn-of-the-month effects. In contrast, for the S&P 500 stock index, the turn-of-the-month and day-of-the-week effects are highly significant, but the week-of-the-month effect is less significant, and the January and turn-of-the-year effects are insignificant. The behavior of an equity index constructed using companies in the bond index is similar to that of the S&P, except the turn-of-the-year effect is significant.

Negotiation and the IPO Offer Price: A Comparison of Integer vs. Non-Integer IPOs

We investigate the pricing of 4,989 equity IPOs with offer dates between 1981 and 2000. Approximately three-fourths of these IPOs have integer offer prices. Average initial returns for IPOs with integer offer prices are significantly higher (24.5%) than those priced on the fraction of the dollar (8.1%). This result is robust through time and after conditioning for other effects known to influence initial returns. We hypothesize that integer vs. fractional dollar IPOs are the result of negotiations between the issuing firm and underwriter. Under this negotiation hypothesis, the frequency of integer pricing should be an increasing function of the offer price and the degree of uncertainty surrounding the value of the firm. Empirical evidence, supportive of the negotiation hypothesis, is presented.

Some empirical tests in the arbitrage pricing theory: Macro variables vs. derived factors

Abstract This study investigates the ability of two models based on the Arbitrage Pricing Theory (APT) to predict portfolio returns over the period 1971–1986 The difference between the two models lies in the factors used In the factor loading model (FLM), the factors are produced by factor analysis and are thus unspecified In the macroeconomic variable model (MVM), the factors are defined as innovations in a set of macrovariables. The two approaches are compared in several different ways Observed differences in test results between the two models are generally relatively small Given some attractive features of the MVM, such as economically interpretable factors, this finding is encouraging and suggests that factor analysis may be unnecessary in implementing the APT.

Real Estate and the Arbitrage Pricing Theory: Macrovariables vs. Derived Factors

Two empirical models are used to implement the arbitrage pricing theory: the factor loading model (FLM) and the macrovariable model (MVM). This study compares the ability of these two models to explain real estate returns using equity REIT returns as a proxy. Two tests are performed: a comparison of cross-sectional adjusted-R2s and the Davidson and Mackinnon test. The results show that while the two models perform equally well during the period 1974 - 1979,the MVM outperforms the FLM over the periods 1980 - 1985 and 1986 - 1991. In addition, both models suggest superior financial performance for EREITs relative to other investments in the market during the period 1980 - 1985.

The overreaction hypothesis, firm size, and stock market seasonality

curities suffering abnormally low returns (“losers”) will subsequently experience abnormally high returns. Further, securities with abnormally high returns (“winners”) will go on to earn abnormally low returns. Such a pattern, of course, is not consistent with even the weakest form of market efficiency. Even so, De I3ondt and Thaler [1987] find that this “winnerloser” pattern exists in security returns and that it appears to concentrate in January. We wish to take a closer*look at the winnerloser pattern and investigate its relationship to firm size and stock market seasonality. Our results indicate that the predicted reversal of gains and losses does not occur universally. Losers do have a pronounced tendency to become winners, but the reverse is not true. Firm size, however, influences the results, and large-firm returns are more consistent with overreaction. Most of the winner-loser pattern does arise in January. We find further that the effect occurs mostly at the turn of the year, but that it is not explainable by tax-loss selling. Strangely, when we examine behavior by day of the week, we find that Monday and Friday exhibit a definite winner-loser pattern in opposite directions. BACKGROUND

Salomon Brothers and the May 1991 Treasury Auction: Analysis of a Market Corner

In May 1991, the Treasury sold

The relative pricing of U.S. Treasury STRIPS: empirical evidence

12.29 billion in two-year notes. Through improper bidding, Salomon Brothers gained control of at least 86 percent of the issue. This study investigates the impact of Salomons attempted corner by examining the postauction price behavior of the two-year note. Based on a no-arbitrage relation, the results show that the two-year note was substantially overpriced for approximately six weeks following the auction. The typical mispricing during this period is estimated at 0.16 to 0.25 percent of par. In dollar terms, the aggregate misvaluation averaged

Underpricing, Overhang, and the Cost of Going Public to Preexisting Shareholders

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