The abnormal returns for initial public offerings over longer time periods seem to call market eﬃciency into question because:
A)the average returns at announcement are large and positive while the long-term results
Are much lower than the returns for seasoned equity offerings.
B)the average returns at announcement are small and negative while the long-term results
Are much lower than the returns for seasoned equity offerings.
C)the average returns at announcement are zero while the long-term results are much higher
Than the returns for seasoned equity offerings.
D)the average returns at announcement are large and positive while the long-term results
Are much higher than the returns for seasoned equity offerings.
E)the average returns at announcement are insigniﬁcant while the long-term results are
Much lower than the returns for seasoned equity offerings.

Question

Quizplus · Accepted Answer

The correct choice is A because it highlights the discrepancy between the initial positive returns at the time of the IPO announcement and the lower long-term performance compared to seasoned equity offerings, which challenges the notion of market efficiency.

The Abnormal Returns for Initial Public Offerings Over Longer Time