Long-Term Stock Returns of Swedish Stock Issuers
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
This master thesis studies the long-term underperformance anomaly by investigating 167 Initial Public Offerings (IPO) and 64 Seasoned Equity Offerings (SEO) conducted on the SSE during 1985-1999. Abnormal returns were identified using Cumulative Abnormal Returns (CAR) compared to benchmarks constituted by two indices and the Fama and French three-factor model. To investigate the impact on a typical Swedish firm great effort was put on distinguishing whether the median or average company provided the best mimic. Even though these estimates to some extent are mixed within the thesis we concluded the median along with a non-parametric statistical test to hold best power of revealing the most accurate level of abnormal performance. Regardless of employed index benchmark all results suggested a statistically significant underperformance for both IPOs and SEOs the five years subsequent to the stock issue. In a three-year perspective the results were somewhat ambiguous, but still indicating poor stock performance. Adjusting for size and book-to-market value, by means of the Fama and French model, the underperformance remained statistically significant for IPOs and SEOs, which in annual terms underperformed the benchmark with 6.4 and 5.0 percent, respectively. Extending the three-factor model to account for factors initially omitted failed to explain the documented abnormal returns, supporting the underperformance anomaly. Finally, the relationship between issuing activity and underperformance was investigated by allowing time-variant intercepts of the time-series regression without finding any support for the timing theory. Compared to previous investigations focusing on the Swedish market this thesis contributes with a more sophisticated benchmark approach, a longer investigated time-period and a more thorough discussion distinguishing an appropriate statistical test.
Place, publisher, year, edition, pages
IdentifiersURN: urn:nbn:se:su:diva-3752OAI: oai:DiVA.org:su-3752DiVA: diva2:193118