The diversification effects of initial public offerings

Hsuan Chi Chen, Keng Yu Ho, Yu Jen Hsiao, Cheng Huan Wu

研究成果: 雜誌貢獻文章同行評審


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.

頁(從 - 到)171-205
期刊Journal of Business Finance and Accounting
出版狀態已發佈 - 2010

ASJC Scopus subject areas

  • 會計
  • 商業、管理和會計(雜項)
  • 金融


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