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Tests for Price Effects of New Issues of Seasoned Securities
Author(s) -
HESS ALAN C.,
FROST PETER A.
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb01092.x
Subject(s) - underwriting , financial economics , efficient market hypothesis , economics , stock price , price formation , monetary economics , empirical research , econometrics , business , actuarial science , stock market , series (stratigraphy) , paleontology , biology , philosophy , epistemology , horse
Do new issues of seasoned securities cause significant price movements in the neighborhood of the issue day? This paper presents an empirical comparison of three competing hypotheses: the SEC view that a new issue causes a permanent price decline; the underwriter view that there is only a temporary price decline during the distribution period; and the efficient market hypothesis (EMH) that implies the absence of any price effects. Several empirical tests of the competing hypotheses using data on new issues of utility stocks traded on the NYSE reject the SEC and underwriter views in favor of the EMH.