The New Issues Puzzle: Testing the Investment-Based Explanation

Evgeny Lyandres; Le Sun; Lu Zhang

doi:10.1093/rfs/hhm058

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The New Issues Puzzle: Testing the Investment-Based Explanation

Evgeny Lyandres¹; Le Sun²; Lu Zhang^3,4

¹ Rice University · ² University of Rochester · ³ University of Michigan–Ann Arbor · ⁴ Michigan United

Review of Financial Studies 2008

An investment factor, long in low-investment stocks and short in high-investment stocks, helps explain the new issues puzzle. Adding the investment factor into standard factor regressions reduces the SEO underperformance by about 75%, the IPO underperformance by 80%, the underperformance following convertible debt offerings by 50%, and Daniel and Titman's (2006) composite issuance effect by 40%. The reason is that issuers invest more than nonissuers, and the investment factor earns a significantly positive average return of 0.57% per month.

DOI: 10.1093/rfs/hhm058
Volume: 21 (6)
Pages: 2825-2855
Language: en
Export: BibTeX
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