Ritter's Study of Initial Public Offerings (IPOs) Showed That the Post

question 10

Multiple Choice

Ritter's study of Initial Public Offerings (IPOs) showed that the post offering stock performance was:

• A) less than the control group by about 2% in the five years following the IPO.
• B) incorrectly priced at issuance because over the next five years the abnormal returns were greater than zero on average.
• C) immaterial to the pricing of the IPO because future market performance is unknown at issuance.
• D) equal across IPOs, irrespective of risk or which year they were issued.
• E) All of

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Definitions:

Green Shoe Provision

An option in an IPO that allows underwriters to buy up to an additional 15% of company shares at the offering price to manage demand and stabilize the stock price after the IPO.

Quiet Period

A time frame in which companies are restricted from making certain announcements to prevent affecting their stock price before a securities offering.

Lockup Agreement

A contract stating that shareholders of a newly issued stock agree not to sell their shares for a certain period following an initial public offering.

Initial Public Offering (IPO)

The first sale of stock by a company to the public, marking a transition from a private to a publicly traded company.