6533b820fe1ef96bd1279a65

RESEARCH PRODUCT

Is the long-run underperformance of seasoned equity issues irrational? Evidence from Spain

José Emilio Farinós ViñasC. José GarcíaAna M. Ibáñez

subject

Transaction costEconomics and EconometricsFinancial economicsmedia_common.quotation_subjectEquity (finance)Holding costSample (statistics)Monetary economicsOptimismIrrational numberEconomicsArbitrageFinancemedia_common

description

Abstract We investigate if the long-run underperformance in the year after the issue of a sample of Spanish SEO firms is related to behavioural biases that lead investors to slowly adjust their pre-issue overoptimism. We also examine the existence of arbitrage costs that preclude mispricing from being corrected rapidly by sophisticated investors who act as arbitrageurs. Our findings support the contention that small SEO firms are overpriced at the time of the issue and suggest that their post-underperformance is related to arbitrage costs, where transaction costs play an important role although holding costs do not.

yearjournalcountryeditionlanguage
2007-01-01International Review of Financial Analysis
https://doi.org/10.1016/j.irfa.2005.07.003