UNDERPRICING OF IPOS (INITIAL PUBLIC OFFERING) IN BORSA ISTANBUL: THE EFFECT OF COVID-19 PANDEMIC PERIOD

Abstract

Purpose- The research investigates the impact of the COVID-19 pandemic on Initial Public Offering (IPO) mispricing in the Turkish IPO market from 2010 to 2022. The study aims to offer valuable insights into the behavior of IPOs during this period, aiding investors and issuers in understanding the effects of the pandemic on IPO pricing. The findings may empower stakeholders, including investors, regulators, and market participants, to make more informed decisions in times of market volatility and uncertainty. Methodology- The study utilizes two methods, ordinary least squares (OLS) and quantile regression (QR), to analyze the impact of independent variables on IPO mispricing. OLS focuses on average effects, overlooking nuances in mispricing distribution. In contrast, QR allows the exploration of variable effects at different mispricing levels, accommodating the asymmetric distribution of returns. Employing QR helps identify specific impacts of variables on IPOs within distinct mispricing levels, addressing distribution heterogeneity observed in the sample. This robust approach enhances the study's ability to capture a more comprehensive understanding of the relationship between independent variables and IPO mispricing. Findings- The study reveals a substantial increase in IPO mispricing during the COVID-19 period, attributed to factors like heightened asymmetric information, reduced IPO volume, and decreased demand. Notably, the impact extends beyond the pandemic period, indicating a lasting effect on IPO mispricing. Sector-specific effects are observed, with all sectors, except Consumer Non-Cyclicals, showing significance in first-day returns. However, for 1-year returns, only the Finance and Energy sectors exhibit significance, with the latter slightly exceeding the 10% limit. Conclusion- The study provides robust evidence of increased IPO mispricing during the COVID-19 pandemic, highlighting the persistent impact of the crisis on financial markets, as well as sector-specific nuances influencing mispricing levels.