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 large and positive initial returns followed by lower long-term returns suggest that the market may not be efficiently pricing IPOs initially, leading to abnormal returns.

The Abnormal Returns for Initial Public Offerings Over Longer Time