Net Stock Anomalies
A large body of academic research has studied the stock price behavior before, in response to, and after significant corporate events. Such events include initial public offerings (IPOs), seasoned equity offerings (SEOs), stock repurchases, issuance of debt, dividend initiation and omission, mergers and acquisitions, spin-offs, and so on. This review focuses on several of these events and on the stock price behavior following them. It is by no means an exhaustive summary of all the research done to date but instead focuses on several studies that sparked and generated a voluminous subsequent body of research. The interested reader may refer to more comprehensive reviews of the related literature such as Fama (1998), Ritter (2003), and Schwert (2003).
The general pattern that emerges from the academic literature is that the stock prices of firms following corporate events tend to drift in predictable manners, for a period of up to five years. Such predictable and observed patterns seem to be inconsistent with market efficiency. As such, academic research, practitioners, investors, and others refer to these patterns as “anomalies.” More formally, Schwert (2003) defines anomalies as, “empirical results that seem to be inconsistent with maintained theories of asset-pricing behavior. They indicate either market inefficiency (profit opportunities) or inadequacies in the underlying asset pricing model.”
The specific ...