The Short and Long Term Performance of Initial Public Offerings in the Cyprus Stock Exchange

Abstract

This study examines the price performance of initial public offerings (IPOs) in the Cyprus Stock Exchange during the period 1999-2002. It investigates the difference between the IPOs listing price and their equilibrium market price through studying a sample of 75 new listed companies. Specifically, it examines the differences between the listing price of IPOs and their equilibrium market prices at the end of the first day, sixth, twelfth, twenty-fourth and thirty-sixth month. From the derived results it is evident that Cypriot IPOs have large positive initial returns, especially on the end of the first trading day. Long term results, not taking into account the first day returns, are much lower and in many cases even negative. Both these trends are in agreement with the outcomes of international empirical studies. The first day underpricing phenomenon forces to search for possible factors, which may have caused it. Different variables, used in similar international studies were used to do so. Our research shows that positive initial returns, amongst other factors, may have been affected by increase in the General Index of the Stock Exchange between the last day of public offerings' period and the first trading day (time lag), the reputation of the companies underwriters, the firms issue size and the companies history. It is also evident that our sample was affected by the extraordinary stock exchange conditions that prevailed during the specified period, which is examined. The intriguing Cyprus Stock Exchange behaviour is further examined by looking into its investment, parallel and alternative primary markets.