Penn Institute for Economic Research Department of Economics University of Pennsylvania 3718 Locust Walk Philadelphia, PA 19104-6297

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PIER Working Paper 04-030
“The Reality of IPO Performance: An Empirical Study of Venture-Backed Public Companies”

by

Yochanan Shachmurove

http://ssrn.com/abstract=568165

The Reality of IPO Performance: An Empirical Study of Venture -Backed Public Companies Dr. Yochanan Shachmurove yochanan@econ.upenn.edu The City College of The City University of New York and The University of Pennsylvania

Abstract The incredible profits of Initial Public Offerings have often been emphasized in the media as a popular investment for the public. This paper takes a few steps towards refuting such an assertion by

investigating the performance of 2,895 venture capital backed IPOs between 1968 and September 1998. The paper finds that it is incorrect to assume that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures in different sectors of the economy. The mean rates of return are found to be, in practice, very moderate, and often, negative.

JEL Classification: C12, D81, D92, E22, G12, G24, G3, M13, M21, O16, O3 Key Words: Initial public offering; venture capita; annualized and cumulative rates of return; Information Technology; Medical, Health and Life Science; Non-High Technology; Biotechnology; Communications; Computer Industry; Semiconductor and Other Electronics Industries.

1

. it was forced to end its operations in August 2001. However. Bailey (2002) emphasizes the need to recognize that an entrepreneur is not just another word for instant millionaire. 2000). 2002). which became a billion-dollar Internet company despite its free. Theglobe. Wall Street Journal. They were seen as people looking for shortcuts. He even invokes the events of September 11. demonstrating a recent example conforming to more realistic statistics. as well as the need to study the venture capital industry and its performances based on available data spanning through the last three decades. a 1. building a company is not just about cashing in stock options as quickly as possible. R4.. Editor’s Note. one often heard about the incredible profits of IPO's. particularly in the past decade. The success of eBay Inc. Another success story that had been frequently mentioned is the online search engine developer Inktomi Corp. 2000).240 percent increase from its offering price was often cited and recited (Stross. only a few years ago. downloadable product (Wayner. rather than misleading. Introduction Respected financial structures. which had a price of $129. without any intention of actually fostering and developing a company. Small Business Special Report. However. another online community site. spirituality and country” (R6). In his writing on the last decade’s entrepreneurs. had a 605 percent gain on its first day of trading. March 27.38 per share at 1998 year-end close.The reality of IPO performance: An Empirical Study of Venture -Backed Public Companies I.com. in order to generate a steady stream of income. Still others quote and recite the success of Red Hat. 618. immediate returns which are unsustainable even in the short run. and now that financial markets are falling.25 in December 1998. have reinvented themselves in their quest to make a slow million (Lawrence Rout. 2 .8 percent higher than the offering price of $18 in July 1998. an online auction house that went public in September 1998 at $18 a share and was trading at $241. have considered entrepreneurs to be people who have solely one quest in life: to get rich fast. that “have helped remind us where moneymaking belongs: among the greater riches of family. people who ultimately lost it all in their quest to make a fast billion.

a telecommunication–wireless company with 1. private industry. are stratified to three 3 . a biotechnology company. active and inactive. a cable and broadcasting company with 706 percent. Furthermore. with 713 percent. Section III. IPO size. In fact. and Alleiance Telecom. a communication technology company with 2.006 percent. The remainder of the paper is organized into the following sections. misconceptions about the industry continue to proliferate. BroadVision.199 percent. This paper investigates the actual performance of 2. an internet company with 1. and for different industries. Section II presents a brief review of the literature. which have been supported by venture capital. based on historical statistics. Omnipoint. including price change and dividends for the year 1999. Venture capital traditionally has been a low profile. In this paper we concentrate on the annualized and cumulative returns of venture capital in different sectors.. Abgenix.Other companies that were often mentioned in the news with total returns. it argues.507 percent. that the total returns of the venture capital market are reasonable given the level of risk. and the role of venture capital for different stages of financing. were Qualcomm. With these types of numbers dominating the media and widely acclaimed success stories. This is done by concentrating on sections of varied types of industries. EchoStar Comm.895 Initial Public Offerings of companies that were backed by venture capital from 1968 until the end of 1998. current total shares.622 percent. The data enable one to ascertain the relationships among a company's cumulative rate of return. share price at the IPO date. Although the national media has given increased attention to the venture capital process during the 1980s and the 1990s. The unique database used in this study includes currently active and inactive public companies. the data for all firms.1 presents the empirical findings for annualized and cumulative rates of return for all firms and for firms stratified as currently active or inactive. It seeks to refute the idea that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures. SDL. it is easy to fall into the trap of expecting high returns and easy riches in the venture capital markets. a telecommunication–carries company with 666 percent. an industrial tech and office products company with 1. Section III is devoted to reporting the empirical results.

2 presents the empirical results for annualized and cumulative returns for major industry groups for current actively and inactively traded companies. Section IV concludes. the Medical. and the Non-High Technology industry. Timmons (1999) provides a summary of rates of return sought by venture capital investors by stage of investment. The basis for such high rates of return is the result of asking venture capital investors to report the rates they apply when discounting the projected cash flows of proposed new ventures. the return is estimated at 18-19 percent." Furthermore. For first stage financing. Health and Life Science industry. Hoban (1976) examines returns by venture capital firms for a sample of over 100 investments during the years 1960 to 1968. investors believe companies with fully developed products and proven management teams should yield between 35 percent and 40 percent on their investment.major industries. Poindexter (1976) studies 92 venture capital firms and finds the average return during the 1960s and early 1970s to be about 14 percent. II.3 further stratifies the data into 6 different sectors: Biotechnology. He finds that for seed and startup financing the annual rates of return range between fifty percent to more than one hundred percent. Communications. the Information Technology industry. Once one accounts for management fees. 4 . Roberts and Stevenson (1992) write about target returns of 50 or 60 percent annually and claim that such returns are not uncommon. Rich and Gumpert (1992) offer the following assessment: "Because risk and reward are closely related. However. more than fifty percent. Medical. Non-High-Technology companies. He finds that. Health and Life Science industries. and Semiconductor and Other Electronic s Industries. and for turnaround financing. while those with incomplete products and management teams are expected to bring in 60 percent annual compounded returns.1 For example. Section III. before deducting management fees. the annual rates of return range between 40 percent and 60 percent. Computer Related companies. Review of the Literature In this paper we seek to explore whether investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing new ventures. the average return through 1975 was 23 percent. Section III.

page 272) estimates that the internal rate of return (IRR) performance of venture capital funds between 1986-1996 has roughly paralleled the performance of the stock market. The minimum was a negative return of 3 percent.7 percent – most of it generated in the last five years – over which the median was 23. Bygrave and Timmons (1992). The man who chose the promising field did better than the man who elected to slug it out in one already crowded. second-stage. The main findings are that while annualized returns are different for current actively and inactively traded firms throughout many stages of financing. bridge. The time period for this study is 16 years. In a pioneering study. The compound annual return over the period was approximately 13. The study is limited to funds in existence for at least five years." The importance of industry choice in achieving start up success has also been studied by others: Hoad and Rosko (1964). Another important consideration of venture-backed public companies is the industry of choice. acquisition. Shachmurove (2001) investigates the annualized returns of 3. research and development.Ibbotson and Brinson (1987) find an average return of 16 percent for the stock price performance of public venture capital firms over the period 1959-1985. Martin and Petty (1983) find a much higher average rate of return – 27 percent – from studying 11 venture capital firms over a short period of five years from 1974 through 1979. first-stage. The 10-year holding period IRR ending in 1996 was 20. third-stage. as well as by stages of financing. Cooper and 5 . Or. which include seed. when the same man tried both. he often failed in the highly competitive business and went on to success in the growing one. They find that the maximum return on a capitalized-weighted basis was 32 percent. and management leveraged buyout funds. examine returns that are based on valuations by the fund managers.5 percent. based on one hundred start-up firms. Murphy (1956) concludes: "In both my surveys. they are much lower than the ones reported by the media and the venture capital literature.7 percent. from 1974 through 1989. Venture Economics (1997. start-up. the conclusion remained the same.063 initial Public offerings of companies that were backed by venture capital from 1968 until 1998 stratified by current actively and inactively traded companies.

the cumulative return at the 90th percentile is 167. the mean of cumulative returns for inactive firms is –71. and finally. mutually exclusive groups. 6 .6 for active firms. etc. next the Medical. ranging from bankruptcy to mergers or acquisitions. Table 1 defines the terminology of statistics for Tables 2-5. Ronstadt. The 1. Peterson.895 cannot be identified as part of these three. Leidecker and Harder (1986).895 firms for both annua lized and cumulative returns and for firms stratified as current actively and inactively traded. while inactive firms (1.401 active firms are defined as those which were traded on the stock market at the end of the period. three companies out of the 2. Reynolds (1986). III. Table 2 presents the results for all 2.1 Empirical Results Empirical Results for Annualized and Cumulative Returns for All Firms The data consist of all venture-backed public companies (2. In this particular stratification.440 companies. The last five rows of Tables 2-5 give the annualized and cumulative returns of the top five firms. Health and Life Science (MHLS) with 645 companies.88 percent. Bruno.Komives (1972). and Life Science (MHLS) industries with 645 companies. such that max-4 denotes the cumulative returns of the fifth company from the top. Medical. 2 The data is further stratified to three major grouping of industries. III. Hornaday. These three groups are Information Technology (IT) with 1. The means of annual returns for all three groups are negative.895) from the end of 1968 to August 1998. max-3 details the corresponding value of the fourth firm from the top. the Non-High Technology (NHT) sectors with 807 firms. and Vesper (1990). Phillips and Kirchoff (1988). Moreover. It is interesting to note that the means for all annualized returns are negative.494 firms) are those which no longer exist for a variety of reasons. and Vesper (1986). Some noteworthy statistics are revealed by the data. The Table is also revealing as far as the excitement that venturebacked capital is generating. and Non-High Technology (NHT) with 807 companies.5 percent for all firms and equal to 365 percent for currently active firms.2 Empirical Results for Annualized and Cumulative Returns for 3 Major Industry Groups Table 3 stratifies the data by the three sectors: the first sector is the Information Technology (IT) industry with 1. The annualized return at the 75-th percentile is only 12.440 companies. III. Health.

the maximum value for annualized returns is 3. annualized returns for these three groups are very similar (-43.86 percent for IT. as one stratifies the data based on industry classification. respectively. versus negative cumulative returns for the other two sectors.Interestingly. respectively). For the other two industries the null hypotheses of zero returns cannot be rejected.296. As can be expected. Table 4 presents the basic statistics for annualized and cumulative returns from the IPO date until the last date in the database (08/19/1998) for only current actively traded companies.7 percent and NHT of 178. Furthermore. Furthermore. Table 4 does reveal that there are different cumulative rates of return.396. It is worth observing that the medians for both the IT and NHT industries are a negative 100 percent. 303 active MHLS firms and 347 active NHT enterprises.7 percent and 278. The annualized returns for all three industries are negative. only the IT sector shows that the mean cumulative return is statistically different than zero. although for the IT industry it is not significantly different than zero.41 percent for IT).7 percent and 25 percent. respectively).1 percent versus 249. at the third quartile point. both annualized and cumulative returns are negative for IT and MHLS. they are a mere 3. However. Furthermore. -44. the statistic for the range is huge for the Information Technology industry whereas the corresponding values for MHLS and NHT are much smaller (3.72 percent. For example.1 percent. when testing for the null hypotheses of cumulative mean equals to zero. There are 751 active IT companies in the sample.30 percent and –48. once one looks at cumulative returns.1 percent for annualized returns for MHLS and NHT. The top five companies ranked by their annualized returns also show that the IT industry has performed much better than both the MHLS and NHT industries. MHLS and NHT. the standard deviation (SD) for annualized returns for the IT industry is more than twice the values of standard deviations for the other two and about five times that for the SD of cumulative returns. the IT industry shows a distinct difference from the other two sectors (57. The cumulative returns from date of IPO to the present was 7 . for annualized and cumulative returns for the more traditional Non-High Technology industry.1 percent versus the corresponding values of MHLS of 149. The medians for both annualized and cumulative returns of all three industries are negative.

6 percent for IT. At the third quartile point the annualized returns for current actively traded companies are very modest.83 percent. but only for current inactively traded firms. 9.482.66 percent for MHLS and 94. even if one picks the venture capital backed firms at the ninetieth percentile point of the distribution.64 percent and 285. Moreover. but have positive values for the medians of annualized and cumulative returns for the NHT industry. 460 inactive NHT (and 3 companies that cannot be categorized to these three groups and thus omitted from the analysis).24 percent for NHT. the corresponding values for MHLS and NHT are much lower (149. -67.20 percent for annualized returns for IT.75 percent for NHT. these negative mean returns are close in magnitude to one another (81. Interestingly. At the ninetieth percentile points. the value for annualized returns for IT (118. for the corresponding industries). annualized returns are modest. There are 689 inactive IT firms.2 percent for IT. and 10. and -71. with a huge standard deviation of 1.1 percent).8 percent for MHLS. and much less corresponding values for MHLS and NHT (245.65 percent. MHLS and NHT.2 percent) is much higher than the corresponding values for MHLS (50. -77.4 percent) and NHT (57.44 percent for cumulative returns. Note that restricting the discussion to currently active traded firms. Table 5 duplicates Table 4. 8 . and -75.07 percent. and 15. respectively. 342 MHLS firms.7 percent and 135.296. biases the reported returns. Even at the third quartile points the annualized and cumulative returns for current inactively traded companies are all negative.77 percent. Strikingly. For all industries both the means for annualized and cumulative returns are negative. 61. respectively). as in Table 4.5 percent for MHLS and 36. the medians for both IT and MHLS are negative for both annualized and cumulative returns. the annualized and cumulative returns are still negative for all industries.9 percent for the NHT industry.5 percent for NHT. annualized returns are 42. 12. Only at the 95th percentile points.4 percent.77 percent.7 percent for IT. even in the 95th percentile point. 11. 31. As one may expect.175.92 percent for IT. Although the maximum annualized return since IPO was impressive for the IT industry (3. for current inactively traded companies. inactive firms performed much worse when compared to active firms. respectively).4 percent for IT and MHLS. -81. Furthermore.9 percent).

where additional 129 firms are now classified as Biotechnology industry.1). MHLS (-6. 176 Computer Related companies. As before. 166 Computer Related companies. negative and significant at 10 percent for Computer Related industries (-21. Health and Life Science industries.3 Empirical Results for Annualized and Cumulative Returns for 6 Major Industry Groups In this subsection. the data are further stratified to 6 different sectors. Medical. we have 1. Communications. These sectors are: Biotechnology. Non-HighTechnology companies. To facilitate the discussion of Table 6. The results for actively and inactively traded companies are summarized in Table 6.45). Health and Life Science Industries (MHLS) are now only 270 firms in this category. we first analyze the actively traded firms. Health and Life science industries (MHLS) are now only 193 firms in this category. The mean of annualized return is statistically significant and negative for Biotechnology (-7. III. The 303 actively traded firms classified before as Medical. the new classifications enable one to reduce the number of firms classified before as non-high technology from 347 to 328 actively traded firms. However. but is not statistically different from zero.Only at the 99th percentile point does the IT industry performs much better than the MHLS and the NHT industries. It is interesting to note that the mean annualized return is positive only for the Semiconductors and Other Electronics. not statistically significantly different from zero for Communications.05) and NHT (-6. and 110 Semiconductors and Other Electronics industries. The 689 inactive IT firms are now broken into three sub-sectors: 403 Communication companies.17 percent). Except for NHT and Semiconductors industries. which has 751 actively traded firms is now broken into three sectors: 437 Communication companies. The 342 inactively traded firms classified before as Medical. Computer Related companies. The sector previously identified as Information Technology (IT). and 148 Semiconductors and Other Electronics industries. where additional 108 firms are now classified as Biotechnology industry.401 actively traded companies. 50 percent of the actively traded 9 . and Semiconductor and Other Electronics Industries. The new classifications enable the reduction of the number of firms classified before as Non-High Technology from 460 to 425 inactively traded firms.

Communication and Semiconductors.5 percent for Semiconductors) and cumulative returns (24. For two sectors. In this respect. This paper investigates the actual performance of 2. In this paper we find that it is incorrect to assume that investors demand very high annualized and cumulative rates of return to compensate for the risks they are taking by financing ventures in different sectors of the economy. in practice.65 and 18. the results for firms in this category are discouraging. these returns exceed 60 percent.firms of the other four industries are losing money both as measured in annualized and cumulative returns. this paper supports the findings of a study done almost a half a century ago. In other words. while the mean of cumulative returns in the Computer Related industries is not statistically significantly different from zero.65 percent. negative. all other means of cumulative returns are positive and statistically different from zero. If one is lucky enough to pick a firm at the top 25 percent of the distribution of cumulative returns.895 Initial Public Offerings of companies that were backed by venture capital from 1968 until September 1998. The paper finds that there are different annualized and cumulative rates of return as one stratifies the data based on company industry groupings.16 percent for Semiconductors). The picture is brighter once one looks at the means of cumulative returns. and often. Turning to the inactive firms presented in the second part of Table 6. one could only talk about any positive returns on his investment in this category if he was lucky enough to hold one of the companies among the best ten percent in these currently inactive enterprises. the median for annualized (3. these results also hold for the 90th percentile. excluding the Computer Related industries. very moderate. these numbers are above 200 percent (218.76 percent for Communication and 222. The mean rates of return are found to be. IV. Murphy 10 . they are all positive.3 percent for NHT and 2. respectively) are very modest. Conclusion The incredible profits of IPOs were often emphasized in the media as a popular investment for the public. Not only are all the means and medians of annualized and cumulative returns for all industries negative. by Murphy (1956) based on one hundred startup firms. Second. First. Even in the NHT and the Semiconductors industries. This paper takes a few steps towards refuting such an assertion and supporting the market’s return to normalcy.

as well as by decades of operation.concludes that rates of return by sectors do differ substantially. However. To ascertain the actual well being of publicly traded venture-backed firms. Further research is currently underway to stratify the data using more detailed industry classifications. our results dispute the findings of many other studies since both annualized and cumulative rates of return are much lower than those quoted in the finance literature and in the media. 11 .

2. Tax policies issues related to venture capital financing were studied by. MA 02210. Early studies include Mansfield (1969).1. Venture Financing 1968 –1998. Boston. Smith and Smith (2000) and Shachmurove (2001).Notes 1. Newark. 12 . Thomson Financial Securities Data. the SEC's electronic database of corporate reports. among others. 22 Thomson Place. NJ 07102. Gompers and Lerner (1999). More recent literature includes. including EDGAR. Venture Financing 1968-1998. and from Venture Economics Information Services. (1986) and Summers (1989). among others. Lerner (1995). Mansfield (1983). Mansfield. The data are from Securities Data Company Platinum 2. The primary source for the data is the Securities and Exchange Commission (SEC). The venture capital literature is by now vast. Gompers (1996).

Brinson (1987). and Harder. March. 42 (1). Peter (1964). New York: McGraw-Hill. William D. May. Cooper. American Economic Review. and Rosko. John D.. Paul A. Part 1 April. Arnold C.. Ph. 18 (1983): 401410.References Bailey. May. 73 (2). p 301-18.D. (1996). Phillips. Joshua (1999). Milwaukee. New York: McGraw-Hill. and Kormives. Poindexter. Vol. Management Factors Contributing to the Success and Failure of new Small Manufacturers. B. Joseph W. Small Business Special Report.” Babson Entrepreneurship Research Conference.. Thomas P. (1992). Ph. Center for Venture Management. (1956). Joshua (1995). "Venture Capitalists and the Oversight of Private Firms.. Gompers. Vol. American Economic Review. Vol. William (1983). p 1-28. An Analysis of New Firm Survival and Growth. Technical Entrepreneurship . Bruce A. and Gary P. Martin. (1988). Wall Street Journal. Bruce D. "Technological Change and Market Structure: An Empirical Study". Jeffery A. Edwin (1969). 42 (1). Dissertation. Hoad William M. "The R&D Tax Credit and Other Technology Policy Issues". al. Mansfield. and Petty. March. Characteristics of Venture Capital Investing. Investment Markets. Hoban James P. Venture Capital at a Crossroads. John L. Mansfield. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital". p 65-71. J. Gompers. Murphy. May. Paul. and Timmons. Vol.. (1972).D. Roger G. Journal of Law & Economics. in Rosenstadt et. p 190-94. "Industrial Research and Development: Characteristics. 50 (1).” Journal of Financial and Quantitative Analysis. 27. Bygrave. Boston: Harvard Business School Press. University of Michigan. 13 . Calgary. “An Analysis of the Performance of Publicly Traded Venture Capital Companies. Costs. and Diffusion of Results". Edwin (1983). Ibbotson. (1976).. Frontiers of Entrepreneurial Research. Albert V. "Grandstanding in the Venture Capital Industry. A Business of Your Own . 76 (2). Mansfield. and Lerner. (1976). p 133-56. Edwin (1986). R4. Leidecker." Journal of Finance. Vol. University of Utah." Journal of Financial Economics. American Economic Review. Ann Arbor: Bureau of Business Research. Dissertation. Bruno. Vol. The Efficiency of Financial Markets: The Venture Capital Case. New York University. September. and Kirchoff.. Jeff (2002) “Growing Up”. Joel K. (1986). 59 (2). p 205-09. “Patterns of Failure Among Silicon Valley High Technology Firms”. Lerner.

and Howard H. Wall Street Journal. Robert. Harper Business. Volume 6. Rein. (2000). and Smith. Roberts. Small Business Special Report. Summers. and Vesper. “Predicting Contributions and Survival. Karl (1990). Entrepreneurial Finance. Prentice Hall Inc. "Alternative Sources of Financing. Michael J. Stevenson. Revised Edition. Richard L.” The Journal of Entrepreneurial Finance. 2000.. Smith. Vesper H. Tax policy and the economy. March. Edited by William A.. Numner 1. Lawrence (2002) “Editor’s Note”. Edited by William A. and London: MIT Press for the National Bureau of Economic Research. R4.Reynolds. 115. Jeffrey A. New Jersey. Stevenson (1992). John Hornaday. Ronstadt. “Annualized Returns of Venture-Backed Public Companies Categorized by Stage of Financing: An Empirical Investigation of IPOs in the Last Three Decades. 2001. Timmons. Boston: Harvard Business School Publication. Investment Benchmarks: Venture Capital. Englewood Cliffs. (1999). Pages 44 – 58. Randall (2002). Rich. Cambridge. New Venture Strategies. Peterson. 14 . John Wiley and Sons." In The Entrepreneurial Venture. Yochanan (2001). Stanley R. Paul D (1986). 27. and David Gumpert (1992). Boston: Harvard Business School Publications. “How to Write a Winning Business Plan. Stevenson. Frontiers of Entrepreneurship Research. Inc. Stross. A. Mass. Lawrence H. (1986).. Wayner.” The Entrepeneurial Venture. EBoys: The First Inside Account of Venture Capitalists At Work. 171-178. Sahlman and Howard H. Rout. Wellesley. Sahlman and Howard H. al. (1989). New York. Shachmurove. Venture Economics (1997). Volume 3. Babson Center for Entrepreneurial Studies. Karl H. Janet K. Crown.” In Ronstadt et. pp.. Free for All Free for All : How Linux and the Free Software Movement Undercut the High-Tech Titans. Frontier of Entrepreneurship Research. Peter (2000). p x. New Venture Creation: Entrepreneurship for the 21 st Century 5th Edition. Massachusetts. ed. pp 127-137. E. Boston : Irwin/McGraw-Hill.

Table 1: Key for Tables 2-5 Label on Output N MEAN STD DEV SKEWNESS USS CV T: MEAN = 0 SGN RANK NUM -=0 SUM WGTS SUM VARIANCE Kurtosis CSS STD MEAN PROB >¦ T¦ PROB >¦ S¦ 100% MAX 75% Q3 50% MED 25% Q1 0% MIN RANGE Q3-Q1 MODE 99% 95% 90% 10% 5% 1% Description of Statistic Number of observation Arithmetic mean Standard deviation Pearson coefficient of skewness Uncorrected sum of squares Coefficient of variation t-statistic testing the mean equal to zero Centered signed rank statistic testing the mean equal to zero Number of non zero observations Sum of the weights for the observations on this variable Sum of the data value for the variable Variance (squared value of the standard deviation) Measure of kurtosis Corrected sum of squares Standard error of the mean p value of the t-statistic p value of the signed rank statistic Maximum data value Third quartile point Median First quartile point Minimum data value Range Quartile range Mode Ninety-ninth percentile point Ninety-fifth percentile point Ninetieth percentile point Tenth percentile point Fifth percentile point First percentile point 15 .

2 167.5 -100 -100 -100 ACTIVE Annualized Return 1401 -7.3 -100 -100 -100 -100 61 10.6 -24.3 365 -100 -100 -100 INACTIVE Annualized Return 1494 -80.1 12.20 0.6 -5.19 0.26 2.82 -24.29 776.0001 3296.50 483.9 -100 -100 -100 All Firms Cumulative Return 2895 26.9 -100 -100 -100 1354.TABLE 2: Annualized and Cumulative Returns .0687 35621 1.87 0.7 -100 -100 -100 ACTIVE Cumulative Return 1401 130.34 -24.8 -44.0001 35621 99.18 25.7 39.5 390.8 75 -38 -100 -100 -100 Mean Std Dev Skewness T:Mean=0 Kurtosis Pr>|T| 100% Max 75% Q3 50% Med 25% Q1 0% Min 99% 95% 90% 10% 5% 1% 16 .30 1.2 21.88 77.64 126.5 -100 -100 -100 INACTIVE Cumulative Return 1494 -71.1 -84.58 6.71 -2.88 111.99 0.82 1546. Active and Inactive Firms All Firms Annualized Return N 2895 -45.98 1101.33 -75.45 781.4 -100 -100 -100 -100 408.69 7.8 72.All.27 368.58 16.5 -100 359.78 0.64 0.69 41.3 -8.0001 219.8 42.0235 3296.74 35.34 4.4 -100 2006 609.20 15.0001 1365.1 0.34 99.2 -100 -100 -100 173.

7 -100 82.0001 1532.1 -6.4 135.5 5962.4107 157 0.7 99.0001 341 0.9 105.5 -76499.0439 341 0.5 645 -28571.87377 1773076 2.564125 0.45 23.5 1532.719 129.5 41432.35 22.4798 214.3525 1.0001 0.1 718.7 174.3 -100 -100 -100 1316.0001 3296.2 1325 1336.7 -100 1069.2836 1.6 3248.0001 0.1 ALL IT Cumulative Return 1440 57.5 -54757 807 -2001.8 3105 Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 Max -1 Max 17 .15 -100 -100 -100 3396.0001 157 0.3 126.32784 807 -173.561158 4544723 -116.5494 4.0001 0.273 26.4402 645 -165.0001 0.341905 26710510 -3085.6 -100 -100 -100 117.1 3.79332 2618115 2.105 2.2 46173.8 -100 -100 -100 1076.695 2.016657 1440 -379 -220953 1440 82669.8797 6.3 -78.1 ALL NHT Annual Return 807 -48.9 99. By 3 Major Industries Medical/Health/Life Science Information Technology Non-High Technology ALL IT Annual Return N 1440 -43.42313 0.1 1361.06605 0.9 100.455 -21.5 -114477 807 -39430.8 1568.1 93.85 -100 359.0001 0.2 2753.5 -100 -100 249.0001 35621 -13.9 -100 -100 -100 614.All Firms.75 -100 1835.1 97.8 57.3 19 -100 -100 -100 97.25 -100 -100 -100 5761.68E+09 28.5 8483.7 -0.9 -37.0001 0.7E+07 -297.8 122.7469 2.0001 230 0.1 742.2 149.7 335.006273 0.82319 645 -165.8607 56.2964 52.17 -0.1 -100 83 34.2 300 122.46769 0.59767 203.0001 178.899 14.68E+09 1881.223 -0.47116 0.TABLE 3: MHLS= IT= NHT= Annualized and Cumulative Returns .43001 26682433 8.2 -0.014749 0.7431 230 0.772 1440 -379 -374350 1440 -62956 16873.4E+07 3.1 103.3 3296.2 1813.7 ALL MHLS Cumulative Return 645 -6.406126 37220641 -8665.2 1226.5 -47249 645 -4255.9937 0.1 -2.7 -100 -100 -100 278.3 1824.645 -24.0001 149.1 -100 -100 1632.4 178.354 807 -173.4 36 22.0001 3105 25 -100 -100 -100 3205 125 -100 900 316.3 67.12 -12.282 -0.343066 3038678 -118.3 11000 35621 ALL MHLS Annual Return 645 -44.9 446.1 ALL NHT Cumulative Return 807 -2.25 -100 -100 -100 35721 86.8 1166990 828.1 191.40958 1080.50773 37215679 7.

7 1303.4 31.0103 12.5 -54998 751 -6615.2 -100 1226.2 -766.2 149.4 32.0057 0.5 -16.7 -100 -100 -100 614.3 126.9 -27.5335 3.224475 407044 -543.1 1361.5 -47.6 -100 235.66106 245.4 135.0155 191 0.9 105.9951 45.0001 3105 139.5 -100 1316.0012 294 0.Table 4: Annualized and Cumulative Returns .0678 0.3 28227.2 42.257 -3.6371 3.5 -7235.0001 127 0.1 ACTIVE NHT Annual Return 347 -5.4105 18221954 14.11148 0.54917 28266980 15.33 -1.8 478.8 3105 18 .2224 35621 87.6 2196928 442.9 100.9222 1482.2 -100 249.2 -55.861877 729911.4 395 -100 -100 -100 5761.0057 0.7 11.5 8483.1 11.5 -100 -100 -100 110.14203 347 17.1512 294 0.5 -5584.1 718.3 2109.5 -100 117.9 2.80866 168.5651 1532.4 -13.0002 149.465655 0.6 2.5 -100 3225.1 -100 97.6 -100 99.8 1568.1 145.6 -100 3205 195.08638 0.1 111.1 742.2 719.4 -100 -100 -100 993.1 ACTIVE IT Cumulative Return 751 175.3667 4.571 0.9 50.369566 303 -24.9 259.089344 393661.4 -5. By 3 Major Industries ACTIVE IT Annual Return N Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 Max -1 Max 751 -8.252616 751 -81.5 1226.0001 0.0001 3296.9 -100 -100 3396.5 250 347 -2080.20417 303 -24.24294 285.130782 0.2 -97.204 19.2 -87.10421 0.1 83 -23.074132 0.43144 347 17.0001 191 0.2 -100 1196.8259 5.5 751 132117.64587 36.9 36.3 1824.6 20.5 5962.9787 21170587 6.93007 -0.3 -67.5 303 -2013.514 2.47061 21228859 -1907.0001 0.53101 742383.67E+09 842.7 38.127 -2.4 15.8938 135.16839 31348941 303.3 11000 35621 ACTIVE MHLS Annual Return 303 -6.6 360.2863 6.9 99.5 880 303 18683.5 9847.0678 0.34394 0.7 ACTIVE MHLS Cumulative Return 303 61.8 122.65E+09 54.5 -45.7 117.6 13.5 -100 1632.4047 19373986 398.5479 1.Active Firms.2 1336.47 41.30619 1.5 1532.8 1316.2 2.2 1813.43679 751 -81.3 3296.4 -100 464 118.3 -62.2 492.0015 127 0.45 218.3 60337.5 347 32702.4 ACTIVE NHT Cumulative Return 347 94.3 81696.8 57.3 -100 -100 35721 187.

1 -100 -100 -100 -100 278.2185 460 -191 -43895.4 0 -100 471.2 74.0001 30 0.238582 3802339 -50.0001 0.9832 689 -297.0001 0.3 967.65 1.8 2.8 658.Table 5: Annualized and Cumulative Returns .5 -99134.3 52.2 195 219.2 0 -100 242.2 9.5 -100 52.8 17002.5 689 -49447.9 -100 -100 -100 1425 3.771 41.3 75 -17.2 102.0001 30 0.76 5.1 12.3 60 -43.4 INACTIVE MHLS Cumulative Return 342 -67.01551 9557275 4.1 0 -100 45.6 73.909223 0.94826 2.7 1076.0001 39 0.4 -100 -100 -100 532.5 -113706 689 -56340.8 -5.490174 0.3 -100 -100 -100 -100 319.9 -100 -100 -100 98.1963 40.5 1669.4 10.9 1069.4 62.8 1365.82 66.543265 7336524 -194.3 1676.4312 -42.0001 70.410859 569350.1 88.629246 2631634 -52.0001 0.0001 39 0.6 256.4 INACTIVE MHLS Annual Return 342 -77. By 3 Major Industries INACTIVE IT Annual Return N Mean 689 -81.0001 0.4 65.5 -100 -100 -100 45.3 -100 -100 -100 242.2 1325 INACTIVE NHT Annual Return 460 -81.0001 1325 -96.0001 178.926 9.3948 7.2 1740.0001 0.050946 0.1 -100 451.3 INACTIVE IT Cumulative Return 689 -71.624169 13106019 -164.72791 5804750 -51.925508 0.261937 1197757 1.8 13891.2 -100 -100 -100 -100 1176.151652 769633 1.421 79.5 460 -34703.5 460 -37350.72441 2.6 -13.6535 40.6201 -35.0001 47 0.0725 130.4 -100 -100 -100 -100 1465.81596 3253585 3.5285 460 -191 -51050.0001 47 0.0001 219.599 -19.0001 0.1 316.51256 342 -141 -25016 342 -22938.0001 1365.3 0 -100 85.19276 7.6 -100 -100 -100 427.5 -100 -100 -100 170.4 -68.5 7088.18577 5871700 -111.4421 689 -297.5 342 -26557.53529 5797961 7.39 73.2 103.1 INACTIVE NHT Cumulative Return 460 -75.3 1135 1213.4424 84.8 70.4 31.8617 7.3 297.409 -9.1 58.7675 117.86136 1.5 451.0259 -51.589573 0.227 -15.1448 342 -141 -28303.75 -5.209529 0.25 -21.All Inactive Firms.2 -100 -100 -100 40.0001 1076.2 Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 Max -1 Max 19 .3 178.

5 437 -4102.95426 186.0922 0.08926 1.631247 4690719 434.6612 2.0001 0.5121 2.481 -1.6382 166 -33 -4411 166 -3560.2 12.3 125.42147 0.2 41.8 60.1 -100 -100 -100 66 72.8 -100 1807.7 83 100.92349 274.03009 437 -61.572917 4771159 -786.6811 8.431719 437 -61.6037 1.4 -1.3 103.5 -32 129 5541.6 164.0154 157 0.5 -19981.26232 -0.96266 4694799 13.1 -100 -100 -100 66 72.2 38.4 -25 -63.01275 184356.6 -100 205.481 1.54E+09 89.3 118.9 105.3 -100 694.616 1.8 -28.2 ACTIVE ACTIVE Computer Related Computer Related Annual Cumulative Return Return 166 -21.2109 2.2 129 42.3 475 266.4476 168.113451 0.325141 177725.29741 0.7 34.7 -25.9 -100 1151.0001 0.2193 35621 93.2 166 21.9 105.0143 105.1 13.9 105.33 87.1 34786.9 -68.3979 4.03 209.0523 0.0001 0.3048 50 0.76 8.0001 0.6 16.9 105.80043 12423547 21.3 75294.7 -100 -100 -100 66 72.3 18.6 -57.4 3536658 292.7 83 100.Active Firms.8 -68 -100 -100 1913.1 495.714 -2.1854 129 -11.5 437 95598.280764 0.1033 50 0.7606 1880.01 53 0.7 -100 464 159.5 -1036 129 -924.3035 157 0.5 3.5 166 3639.9 53.16977 37.Table 6Ai: Annualized and Cumulative Returns .96131 0.38764 190.7 83 100.1445 15824632 9.2 20 .5125 12.2 -100 -100 -100 66 72.0523 0.5 -3228.65 -100 -100 1913.1 113.6 -100 3300 713.7 83 100.9404 1051.56E+09 859.1 -100 -100 3396.4 -100 66 72.8 -100 742.6 18.9 105.7 -93.9 -100 100.1 -100 66 72.3 28453.615737 129 -11.22 22.2 ACTIVE Communications Cumulative Return 437 218.0001 1813.3 -8 -26. By 6 Industry Sections ACTIVE Communications Annual Return 437 -9.4 36295.029397 166 -33 -2719.9 1388.2 ACTIVE ACTIVE Biotechnology Biotechnology Annual Cumulative Return Return N Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 max-1 Max 129 -7.6 -100 -100 35721 193.5 -49.391562 12503333 1251.9 105.0001 1813.8 -519.7 83 100.0001 3296.50511 15863144 -2029.3 61.1 -99.7 83 100.401836 4452705 16.3 3.0307 53 0.2 426.

1 84.00714 0.3 -60.16069 0.141822 328 18 9219.65 -55.0001 5962.5 232.6 5.6 -100 66 72.1 1278.9 -100 1632.7 83 100.2 ACTIVE Semiconductors/ Other Elect.181 39.2 ACTIVE Non-HighTechnology Annual Return 328 -6.4 33. Cumulative Return 148 222. By 6 Industry Sections ACTIVE Medical/Health/ Life Science Cumulative Return 193 68.0531 0.7 9.1615 774.410068 229118.297 0.47311 193 -13.1752 87 0.6 -100 99.194969 0.128587 222045.5 72260.06549 587144.7488 5.66 13.5 -3 -26.0143 83 0.95 -100 3205 201.35 -100 117.7 83 100.55989 28011835 16.0997 47.0531 0.8 -100 -100 -100 66 72.2 -64.2 ACTIVE Non-HighTechnology Cumulative Return 328 99.1 2.930372 594557 893.9 58.7 -771.4286 1532.9 105.5 -2140 193 -1168.2 -100 -100 -100 66 72.19953 4.0001 3105 145.Table 6Aii: Annualized and Cumulative Returns .1 145.7 2213.1392 550 14.68396 0.1 -99.9 600235.65 3.9 105.047431 31243216 294.501774 14788991 390.70527 723748.0237 1.279 -2.597664 0.5 191.1 381.447887 0.4 -100 6062.9 43.5 -78.1 -100 66 72.85233 268.7323 3.21509 13874047 19.65 -100 5130.62763 88234649 63.5 138.5 328 32556 85663.362285 148 13 773.7 83 100.2 2.1 39.5 328 -2000.7 32.7 -100 235.1 436.1 -100 650 23.2 ACTIVE Semiconductors/ Other Elect.7 -94.7 83 100.1 -84.51378 735951.1 24.0395 0.8134 3.558331 193 -13.0056 149.6 -64.8 495.9 105.0195 182 0.5 617 193 13288.3 -16.2 21 .5 -100 66 72.6826 5.1 -100 249.485 3.05389 34.4885 148 13 2095 148 32879.25 18.9 105.37664 95539296 348.9 105.7 83 100.7 83 100.04569 -0.2 ACTIVE Medical/Health/ Life Science Annual Return N Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 max-1 max 193 -6.05 -100 1226.9 -100 66 72.4202 3.0005 83 0.741 -2.061 0.9 105.8706 135.9 38.34961 0.6 -42.0395 0.4 -16.7 35.5 712.8762 6.0001 182 0.061 0.Active Firms.3 -100 1361.4 3994.5 148 1047.65 -53.0006 87 0.34815 328 18 280.2561 292.9 28.6 -100 275.7 38. Annual Return 148 7.6 -33.8 59.077027 63.5 -9.5 2.4 16.4 1156.6 -561.

0007 14 0.0001 0.4 -100 -100 -100 66 72.4 -100 -100 -100 -100 1465.4 66.3 -6 -100 -100 -100 66 72. By 6 Industry Sections INACTIVE INACTIVE INACTIVE Biotechnology Biotechnology Communications Annual Cumulative Annual Return Return Return N 108 -71.7 83 100.2 176 -51.4 3.44901 6794551 14.0001 0.0001 0.0001 486.3 38.Table 6Bi: Annualized and Cumulative Returns .9 105.3 -17 -100 -100 -100 66 72.77717 1885823 12.3 102.0001 1365.0001 25 0.4 2018.3 0 -100 87.15939 353250.0001 58.2 8.69204 108 -45 -2280.386616 0.000575 1490621 -55.7 83 100.7 83 100.3 -100 -100 -100 66 72.875 23.7348 402 -176 -34019 402 -31524 5749.30761 1.4 17624.136973 745979.5 108 -7738.661 8.934 -0.8 -100 -100 -100 66 72.9 -84.2 INACTIVE INACTIVE Computer Related Computer Related Annual Cumulative Return Return 176 -80.4994 197.92854 3.0001 219.3 -59.612 -3.35 -100 -100 -100 158.5 12.6 -100 -100 -100 -100 586.3886 44.0432 5.0001 9 0.488 -4.8 170.0001 0.574 12.52 36.7372 176 -74 -7413 176 -14148.9 105.9 -56.6509 42.071052 0.0001 9 0.0001 25 0.0736 -40.85269 0.4 -33.7 83 100.6001 108 -45 -2816.9 -29.09462 191522.4 -3.25 -100 -100 -100 1067.4537 41.701531 4777746 -96.2 402 -82.9 105.Inactive Firms.28754 2.767261 3416613 -50.0001 967.0001 14 0.01 32.0001 195 -100 -100 -100 -100 295 0 -100 85.4 1704.6 0 -100 306.781953 0.89044 2305700 3.4 0 -100 1213.0001 0.059235 0.9 2.9 11.8892 -23.6972 -20.9389 132.9 4.9 105.914913 683568.77458 0.3 1789.9 15.9 38826.2 Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 max-1 max 22 .7 83 100.7 83 100.46735 176 -74 -6194 176 -9063.0468 -17.82793 4.8 -19.7574 5.041 402 -176 -38579 402 -33146.9 105.4179 75.525446 7261337 -382.9 105.0001 0.2 INACTIVE Communications Cumulative Return 402 -78.3 -100 -100 -100 -100 319.2 -100 -100 -100 66 72.59911 2273832 -221.65 -100 30.75 -100 451.5 108 -6473.2 108 -59.

9 105.0001 61 -100 -100 -100 -100 161 0 -100 14.678 13.5 110 -8759.7 83 100.9 105.142 75.2758 -40.8245 41.4 1468.633726 413963.2 INACTIVE INACTIVE Semiconductors/ Semiconductors/ Other Elect.2 2.5 -100 -100 -100 66 72.4167 3.8 -100 -100 -100 -100 345.1 1538.2952 9.5 77.6355 57.9 105.0001 245.0001 0.0001 1076.0001 1325 -100 -100 -100 -100 1425 0 -100 274 58 -40.52 94.474468 0.5467 110 -47 -2665.4 11.2052 425 -175.149566 728244.9 5.Table 6Bii: Annualized and Cumulative Returns – Inactive Firms.2288 1.1819 39.3 -100 -100 -100 66 72.8 14712.2 -100 -100 -100 66 72.1217 -22.6 -5. Annual Cumulative Return Return 110 -81.30554 3957669 7.0001 70.7252 121.85197 270 -112 -16548.0001 23 0.2 -12.1 0 -100 45.795 -17.4308 86.0001 37 0.7 83 100.9 -47.0001 0.557 5.547895 1056937 -72.804423 887515.8 0 -100 162.9 105.9 105.387388 0. Other Elect.60786 3204228 4.2 -100 -100 -100 -100 1176.38179 0.5 270 -21919.1 7557.786 -9.1 -100 -100 -100 -100 278.438 1.6 78.7 83 100.653688 0.7 83 100.928673 160059.8 -9.6 -21. By 6 Industry Sections INACTIVE INACTIVE Medical/Health/ Medical/Health/ Life Science Life Science Annual Cumulative Return Return N 270 -81.0001 0.0001 0.93182 7.4 1717.2 -33.0045 270 -112 -17779.0001 178.0001 0.7 83 100.230976 3504597 -51.2 Mean Std Dev Skewness USS CV T:Mean=0 Num ^= 0 M(Sign) Sgn Rank Sum Wgts Sum Variance Kurtosis CSS Std Mean Pr>|T| Num > 0 Pr>=|M| Pr>=|S| 100% Max 75% Q3 50% Med 25% Q1 0% Min Range Q3-Q1 Mode 99% 95% 90% 10% 5% 1% max-4 max-3 max-2 max-1 max 23 .4 -100 -100 -100 -100 170.071092 5385686 -166.0001 8 0.0001 8 0.022578 5558706 -116.2 -100 -100 -100 66 72.2 110 -79.7 2.7 3.955282 2193397 -48.9 3296.5 -43495 425 -34350.2 270 -72.3202 1.216813 0.010301 0.2575 110 -47 -2982 110 -8945.5 -36894 425 -31633.0994 -14.2 INACTIVE Non-HighTechnology Cumulative Return 425 -74.47016 359337.3221 -34.9 105.2 INACTIVE Non-HighTechnology Annual Return 425 -80.3218 38.7 83 100.0001 37 0.15 -100 -100 -100 66 72.25 -100 -100 -100 66 72.7 4.5 270 -19635.44342 2.898 2.651 425 -175.0001 0.4 0 -100 52.2 0 -100 242.1 12.0001 23 0.

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