Concluding Remarks

Abstract

This work links information risk to the long-term abnormal performance of IPO firms. As information risk is priced by investors, but cannot be assessed ex-ante for an IPO, investors in IPO firms have to form an expectation. Depending on whether the information risk has been initially underestimated (overestimated), the stock price has to be corrected downward (upward) as more and more firm-specific information becomes available. This gradual correction process leads to the appearance of abnormal returns (i.e., returns not explained by equilibrium asset pricing models) over a lengthy period.