The cost of diversity: the diversification discount and inefficient investment

Article Abstract:

A model of diversifying investments shows that when company divisions have similar levels of opportunities and resources funds will move from divisions with poor opportunities to those with better opportunities. When resource and opportunity diversity increase, resources can flow to more inefficient divisions.

Analysis, Management research

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Investing for the long run when returns are predictable

Article Abstract:

Investors looking for long-term returns tend, even after considering parameter uncertainty, to allocate significantly more to stocks with long horizons. Long-term investment choices must also incorporate estimation risk.

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Analyst following of initial public offerings

Article Abstract:

We examine data on analyst following for a sample of initial public offerings completed between 1975 and 1987 to see how they relate to three well-documented IPO anomalies. We find that higher underpricing leads to increased analyst following. Analysts are overoptimistic about the earnings potential and long term growth prospects of recent IPOs. More firms complete IPOs when analysts are particularly optimistic about the growth prospects of recent IPOs. In the long run, IPOs have better stock performance when analysts ascribe low growth potential rather than high growth potential. These results suggest that the anomalies may be partially driven by overoptimism. (Reprinted by permission of the publisher.)

Research, Going public (Securities), Initial public offerings, Financial analysts

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