Initial Public Offerings and the Firm Location

The firm geographic location matters in IPOs because investors have a strong preference for newly issued local stocks and provide abnormal demand in local offerings. Using equity holdings data for more than 53,000 households, we show the probability to participate to the stock market and the proportion of the equity wealth is abnormally increasing with the volume of the IPOs inside the investor region. Upon nearly the universe of the 167,515 going public and private domestic manufacturing firms, we provide consistent evidence that the isolated private firms have higher probability to go public, larger IPO underpricing cross-sectional average and volatility, and less pronounced long-run under-performance. Similar but opposite evidence holds for the local concentration of the investor wealth. These effects are economically relevant and robust to local delistings, IPO market timing, agglomeration economies, firm location endogeneity, self-selection bias, and information asymmetries, among others. Findings suggest IPO waves have a strong geographic component, highlight that underwriters significantly under-estimate the local demand component thus leaving unexpected money on the table, and support state-contingent but constant investor propensity for risk

The Idiosyncratic Volatility Puzzle: Time Trend or Speculative Episodes?

Campbell, Lettau, Malkiel, and Xu (2001) document a positive trend in idiosyncratic volatility during the 1962--1997 period. We show that by 2003 volatility falls back to pre-1990s levels. Furthermore, we show that the increase and subsequent reversal is concentrated among firms with low stock prices and high retail ownership. This evidence suggests that the increase in idiosyncratic volatility through the 1990s was not a time trend but, rather, an episodic phenomenon, at least partially associated with retail investors. Results from cross-sectional regressions, conditional trend estimation, stock-split events, and "attention-grabbing" events are consistent with a retail trading effect. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: [email protected], Oxford University Press.

Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors

We study stock holdings and trading behavior of more than 60,000 households and find evidence consistent with dividend clienteles. Retail investor stock holdings indicate a preference for dividend yield that increases with age and decreases with income, consistent with age and tax clienteles, respectively. Trading patterns reinforce this evidence: Older, low-income investors disproportionally purchase stocks before the ex-dividend day. Furthermore, among small stocks, the ex-day price drop decreases with age and increases with income, consistent with clientele effects. Finally, consistent with the behavioral "attention" hypothesis, we document that older and low-income investors purchase stocks following dividend announcements. Copyright 2006 by The American Finance Association.