The Market-Timing Characteristics of Equity Carve-Outs

30 Pages Posted: 25 May 1999

See all articles by John R. M. Hand

John R. M. Hand

University of North Carolina Kenan-Flagler Business School

Terrance R. Skantz

University of Texas - Arlington

Date Written: May 10, 1999

Abstract

Equity carve-outs appear to accurately correlate with the peak in an overvalued stock market. We base this conclusion of market timing on four findings in a sample of 265 carve-outs undertaken by publicly traded parents between 1981 and 1995. First, the mean return on the value-weighted NYSE, AMEX and NASDAQ market over the year before the carve-out is substantially above the unconditional expected return on the market. Second, this same pre-carve-out mean market return is substantially greater than the mean return on the market over the year after the carve-out. Third, maximum likelihood estimation indicates that the return on the market drops 16 days prior to when the carved-out subsidiary stock is issued. Fourth, carve-outs are contrarian predictors of future one-year market-wide returns, even after controlling for rational determinants of future market returns.

JEL Classification: G14, G34

Suggested Citation

Hand, John R. M. and Skantz, Terry R., The Market-Timing Characteristics of Equity Carve-Outs (May 10, 1999). Available at SSRN: https://ssrn.com/abstract=164008 or http://dx.doi.org/10.2139/ssrn.164008

John R. M. Hand (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3173 (Phone)
919-962-4727 (Fax)

Terry R. Skantz

University of Texas - Arlington ( email )

415 S West St Apt no 205
Arlington, TX 76019
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
795
Abstract Views
4,098
Rank
57,570
PlumX Metrics