George Wong

Cross-Sectional Determinants of Post-IPO Stock Performance: Evidence from China

This paper examines the cross-sectional determinants of post-IPO long-term stock returns in China. We document that the aftermarket P/E ratio has the most robust negative association with post-IPO stock returns. The negative relation indicates that the market corrects the aftermarket overvaluation of IPO firms in the long run. Underwriter reputation has a positive effect on post-IPO stock returns, while board size has a negative impact, consistent with the views that reputable underwriters mitigate the information asymmetry in IPO pricing and over-sized boards reduce the effectiveness of corporate governance. However, we find little evidence indicating that the equity ownership structure is significantly associated with post-IPO stock returns.

Multiplicative Risk Prudence

We examine the optimal saving decision of individuals who face a multiplicative risk. An individual is defined to be multiplicative risk prudent if multiplying a pure risk to her future wealth raises her optimal savings. We show that an individual is multiplicative risk prudent if and only if her relative risk prudence uniformly exceeds two. Our result suggests a more restrictive assumption that needs to be imposed on preferences for individuals to be risk prudent.

Does the More Risk‐Averse Investor hold a Less Risky Portfolio?*

We study the suitability of using absolute risk aversion as a measure of willingness to take risk in the Arrow–Debreu portfolio framework. We define a global measure of risk for the Arrow–Debreu portfolio, which is measured by the sensitivity of an individuals Arrow–Debreu portfolio payoff to the change in the market return. We call this measure ‘conservatism’ and show that the concept of ‘more conservative’ is stronger than that of ‘more risk-averse.’ A higher absolute risk aversion is only necessary but not sufficient to induce a less risky Arrow–Debreu portfolio. Our results not only challenge the well-accepted notion that a more risk-averse investor holds a less risky portfolio, but also suggest a stronger measure – conservatism – for evaluating the riskiness of portfolio.

Multiplicative Risk Prudence, Inflation Uncertainty and the Real Risk-Free Rate Puzzle

We examine the optimal saving decision of individuals who face a multiplicative risk. An individual is defined to be multiplicative risk prudent if multiplying a pure risk to her future wealth raises her optimal savings. We show that convex marginal utility is not sufficient to induce multiplicative risk prudent. Instead, an individual is multiplicative risk prudent if and only if her relative prudence of future consumption uniformly exceeds two. Our results provide an explanation to the real risk-free rate puzzle. Intuitively, the presence of (or an increase in) inflation uncertainty in an economy should stengthen the aggregate precautionary motive to save, leading to a reduction in the equilibrium real risk-free rate. Thus neglecting inflation uncertainty may result in an overestimation of real risk-free rate. We also study jointly the impact of correlated additive and multiplicative risks on the optimal savings decision and demonstrate that the concept of multiplicative risk prudence is stronger than that of additive-multiplicative risk prudence. Our findings suggest one should take the condition of multiplicative risk prudence as a natural restriction on preference.