Luận Văn Essays on the equilibrium valuation of IPOs and bonds by Wen, Kehong

Essays on the equilibrium valuation of IPOs and bonds



Chapter 1 of this dissertation provides rational explanations for the IPO underperformance puzzle. EPO underperformance is shown to arise in three equilibrium models with investor heterogeneity and participation restrictions. The models also help explain why IPO underperformance is concentrated in small stocks and why the average IPO return can be below the risk-free rate. In these models, IPO residual risk acts as a source of systematic risk. Schumpeterian creative destruction plays a key role in one of the models. This model is extended into a dynamic setting in Chapter 2 to demonstrate that persistent after-market underperformance is consistent with a rational expectations equilibrium. Building on the dynamic extension, a unified framework is offered in Chapter 3 to address all three IPO pricing puzzles. Many testable implications are derived and presented in detail to facilitate future empirical work. Chapter 4 investigates the general equilibrium implications of introducing new industries into the economy. It first establishes that the equilibrium of an N-industry pure-exchange economy supports an N-factor Vasicek term structure of interest rates. It then shows that industry characteristics enter as direct determinants of the yield curve, the term premium, the forward premium, and the stock premium. Depending on the nature of industry heterogeneity, the term structure of interest rates and the stock premium can have qualitatively different dynamics. Depending on how industries interact, the market-price-of-risk vector may admit different signs for its components. Consequently, risky assets representing high impact industries can have negative return premia over bonds. This helps explain why new industries may appear over-valued at times.
[TABLE="class: citation"]
[TR]
[TH]Format:[/TH]
[TD]Dissertation[/TD]
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[TR]
[TH]Author(s):[/TH]
[TD]Wen, Kehong[/TD]
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[TR]
[TH]Published:[/TH]
[TD]2000[/TD]
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[TR]
[TH]Language:[/TH]
[TD]English[/TD]
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