Which One of These Is a Finding of Ritter's Study

question 15

Multiple Choice

Which one of these is a finding of Ritter's study of initial public offerings (IPOs) ?

• A)Firms with either IPOs or SEPs tend to outperform their control groups for the 5-year period following the issue of the new securities.
• B)IPOs are generally incorrectly priced at issuance because over the next 5 years the IPO firm's abnormal returns exceeded 6 percent on average.
• C)The annual returns for IPO firms during the 5-year period following an IPO are about 2 percent lower than their control group.
• D)Comparable IPO and non-IPO firms had similar returns for the 5-year period following an IPO.
• E)IPO firms tend to lose 10 percent or more of their market value in the 2 years following their IPO.

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Definitions:

Anchoring and Adjustment Heuristic

A cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.

Representativeness Heuristic

A mental shortcut people use where the likelihood of an object belonging to a particular category is assessed based on how typical that object is thought to be of the category.

Availability Heuristic

A cognitive bias that causes people to overestimate the likelihood of events based on their ability to recall similar instances.

Escalation Heuristic

A cognitive bias or decision-making process where individuals increase their commitment to a previously taken course of action beyond the level that is justified by the current situation.