Search results for "Three factor model"

Illiquidity Risk and the Long-Run Underperformance of Seasoned Equity Issues in the Spanish Market

2008

This paper presents new evidence on potential risk-based explanations for the low SEO returns in the year after the issue. Specifically, we analyse whether the issue leads to a long-term higher stock liquidity that implies that SEO stocks have lower expected return due to lower exposure to liquidity risk factor. Therefore, we investigate if Spanish SEO firms experience significant changes in long-term liquidity after the issue. Results suggest that SEO-firm liquidity increases significantly in the year after the issue. Finally, we explore the post-performance of SEO firms explicitly accounting for liquidity risk. In particular, we employ the three factor model by Fama and French (1993) exte…