Abstract Reinganum (1990) reports that small NYSE securities have average returns about 6% per year higher than those of similarly-sized NASDAQ securities during the 1973–1988 period. He attributes the return differential to market microstructure differences. In contrast, this paper demonstrates that differences in the characteristics of the companies listed on the two exchanges explain much of the disparity. About 60% of the return differential can be attributed to the poor performance of recent initial public offerings, which comprise a large portion of the firms on NASDAQ. On average, IPOs underperform during the six calendar years after going public.