Do New Equity Issues Fetch Extranormal Returns?

Abstract

Do new equity issues earn attractive returns after adjusting their risk? To answer this question, Gujarathi analyses empirical data on 98 randomly selected new security issues made between 1970 and 1978. He considers the returns from the date of the closure of the subscription list to the date of its first market quotation.

Gujarathi's analysis shows that an average investor earned an attractive extranormal return of 2.44 per cent per month after adjusting for the risk and the time value of money. He has also tested many of the popular beliefs of investors.