Abstract
This paper investigates the aftermarket volatility and underpricing of the Initial Public Offerings (IPO) listed on Toronto Stock Exchange during the period 1990-1999. The results indicate that the aftermarket volatility has increased significantly for IPOs issued in the recent years. The decomposition of the aggregate aftermarket volatility in market, industry and firm-specific components reveals that the increase is mostly attributable to firm-specific risk. We also find that the volatility of IPOs is smaller than that of comparable (matched) seasoned stocks. Although our results show an overall positive relationship between IPO underpricing and aftermarket volatility, we find that this relationship has become considerably weaker in recent years. We find no obvious explanation for these findings.
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