The Diversification Effects of Initial Public Offerings

NCUIR > School of Management at National Central University > Department of Finance > journal & Dissertation > Item 987654321/51701

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Title:	The Diversification Effects of Initial Public Offerings
Authors:	Chen,HC;Ho,KY;Hsiao,YJ;Wu,CH
Contributors:	財務金融學系
Date:	2010
Issue Date:	2012-03-27 19:03:11 (UTC+8)
Publisher:	國立中央大學
Abstract:	A firm's stock becomes publicly tradable through an initial public offering (IPO). This study suggests a portfolio diversification perspective to explore IPOs. We examine whether investors can gain diversification benefits by adding an IPO portfolio to a set of benchmark portfolios sorted by firm size and book-to-market ratio. Using US IPOs from 1980-2002, we find that adding a value-weighted IPO portfolio does lead to a statistically and economically significant enlargement of the investment opportunity set for investors relative to investing solely in a set of benchmark portfolios. Specifically, the Sharpe ratio of the tangency portfolio increases by 5.50% on average after including IPO stocks. Furthermore, IPOs associated with prestigious lead underwriters are the main source of this augmentation of the mean-variance investment opportunity set. Finally, our study implies that issuing IPO exchange traded funds or similar products can provide diversification gains to investors.
Relation:	JOURNAL OF BUSINESS FINANCE & ACCOUNTING
Appears in Collections:	[Department of Finance] journal & Dissertation

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