To take maximum advantage of new issues, an investor should own a stock for at least one year.

Question

Quizplus · Accepted Answer

Studies by Miller and Reilly; Ibbotson, Sindelar, and Ritter; Muscarella and Vetsuypens; and others have indicated that positive excess returns are related to the issue of the stock. Miller and Reilly, for example, observed positive excess returns of 9.9% one week after issue. However, the efficiency of the market comes into play after the stock is actively trading on a regular basis, and any excess returns begin to quickly disappear. Excess returns represent gains above the market averages, after adjusting for the relative risk of the investment. The lesson to be learned is that, on average, the best time to buy a new, unseasoned issue is on initial distribution from the underwriting syndicate (investment bankers, dealers, brokers), and the best time to sell is shortly after.

To Take Maximum Advantage of New Issues, an Investor Should