IPO Stocks Research Articles

Learning from noise: Evidence from India’s IPO lotteries

We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Investors who win the lottery and obtain IPO stocks that rise in value increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are negative for lottery winners obtaining IPO stocks that fall in value. A model in which agents learn from random experience about their ability to operate in the market environment best explains the results. Investors who have received multiple past IPO allocations show smaller responses, suggesting that learning/selection moderates these responses to noise shocks.

Information Spillover and Demand Shock Effect of the IPOs on the Stock Price of the Competitors: Evidence From the Korean Stock Market

This paper examines the impact of IPOs on the stock prices of competing companies in the same industry in the Korean stock market. By observing the stock price responses of competitors at the time of IPO announcement and listing, this study attempts to separately examine the effect of IPO's information transfer and its impact on the stock demand of competitors. Before and after the IPO announcement, the stock prices of competitors did not change significantly. On the other hand, during the period surrounding the IPO stock listing, the stock price of competitors showed a significantly negative decline. This suggests that as the IPO stock related information was revealed through the public offering process, it negatively affected the stock price of competing companies. Also, the listing of IPO stocks seems to have adversely affected the stock demand for competing companies. In particular, among the effects of information transfer, the competitive effect is overwhelming, and the factors that influence relative competitiveness in the industry between competitors and an IPO company, such as operating profitability and R&D investment, are found to have a substantial influence on the share price of competitors.

Local investor horizon clientele and IPO underpricing

We study how the heterogeneity in investment horizons of local institutional investors affects the IPO market. Because short-term investors prefer more liquid stocks than long-term investors do and IPO stocks have high liquidity in the aftermarket, a higher presence of local short-term investors should be related to higher IPO underpricing. We test this hypothesis by constructing a geography-based measure of “local short-term presence”, which captures the cross-sectional variations in regional investor horizon clienteles. We find that local short-term presence is strongly positively related to IPO underpricing. Our results are consistent with the view that investor-base heterogeneity affects asset returns.

EVENT STUDY OF IPO IN INDONESIA: PUMP-AND-DUMP & FLIPPING STRATEGY ANALYSIS

There were three important IPO anomalies: the positive average initial return (improperly called short-term 'underpricing'), the long-term underperformance, and hot/cold IPO. The EVENT STUDY model explained the 'underpricing' based on the assumption that the underwriter sets the initial price equal to the market-perceived true value and investors were rational. IPO prices are affected by demand and supply. The idea of the model was to explore pump-and-dump and flipping patterns exhibited upon IPO anomalies event in Indonesia. Pump-and-dump is the strategy to manipulate stock prices, while flipping was stocks bought at the IPO and sold at early days ta listing date. This strategy oftentimes exhibits anomalous behavior. Some implications of this model for the IPO market were positive 1st-day initial return (IR) and a negative relation cumulative average abnormal 5-days abnormal return (CAAR-5days) for flipping strategy. The other was a relationship between underperformance cumulative average 30-days abnormal returns (CAAR-30days) and cumulative average 5-days (CAAR-5days) abnormal returns in terms of pump-and-dump strategy. Using the relation between the Characteristics (Size of issue, Board and Floating rate) and Macroeconomics Condition (Central Bank Rate, Inflation rate, USD/IDR exchange, and GDP growth), and the IR, a CAAR-5days and a CAAR-30days, this EVENT STUDY explained the existence of the pump-and-dump and flipping pattern in the Indonesian stock exchanges. The Authors implemented a multivariate analysis of variance (MANOVA) to test hypotheses regarding the effect of a three-variables dependent (the initial return, a 5-days abnormal return, and a 30-days abnormal return) into several dependent variables. Using the IPO data taken from 2015-2019, the paper found that this EVENT STUDY explained the existence of pump-and-dump and flipping patterns at the early trading of IPO stocks in the Indonesia Exchange Market.

Will data on internet queries predict the performance in the marketplace: an empirical study on online searches and IPO stock returns

It has become a popular research topic how data on Internet queries are used to make reliable predictions about changes in the marketplace. In this study we analyze the relationship between the online search volume of IPO or initial public offering stocks and their post-IPO stock returns. We obtain the online search data sets of the NAVER, one of the largest online search services in Korea, and the information on IPO stocks and their post-IPO stock returns at the Korea Exchange. We investigate the daily online search volume data of 87 companies that went public in the year of 2016. After analyzing the relations of the abnormal returns and online search volumes using the event study methods, we find that the lower the amount of online search for stocks before IPO, the higher the stock returns after IPO both in short and long-term. One standard deviation increase in search volume decreases one-day return by 3 basis points, two-day return by 6 basis points, and 4-day return by 10 basis points. These economically significant results become stronger if we control for benchmark returns, firm size, and book-to-market ratio. This finding suggests that IPO stocks with low investors’ attention based on the Internet search volume may be undervalued.

Optimisme Investor dan Kinerja Jangka Panjang Saham Pasca Initial Public Offerings yang Listing Di Bursa Efek Indonesia

This study discusses and analyzes from the perspective of investor optimism and long-term performance after the IPO in the Indonesian capital market. Observations will be made regarding the influence of investors on the increase in the length of shares after the IPO with control variables of company size, company age, offer size, the achievement of underwriters, profitability on the Indonesia Stock Exchange. This study uses data from 2004-2017, with 194 IPO companies from 2004-2015 in the Indonesian capital market. Testing is done by using two drunken linear regression. The results of this study indicate that investors in the Indonesian capital market not only consider irrational factors but also consider rational factors about the company's character in making decisions to buy IPO shares. The characteristics of the company include the size of the company and the size of the stock offering. This study provides benefits for IPO stock investors who rely on the benefits of initial stock investment in a relatively long period of time so as not to suffer losses

Do analyst recommendations matter for rival companies?

In this paper, we revisit the information spillover produced by analyst recommendations in the context of IPOs in China. Contrary to the contagion effect documented in the previous literature, we find a competitive effect, i.e., positive analyst recommendations on rival firms will decrease the first-day return of IPO stocks while negative analyst recommendations on rival firms will increase the first-day return of IPO stocks. The conclusions are robust to different proxies and windows, as well as different industry classifications. Moreover, by examining IPO stocks' comovement with the market and long-term performance, we demonstrate that this finding cannot be fully explained by hypotheses such as sentiment contagion or biased offering prices. Besides, we also show that this finding is more pronounced in highly competitive and correlated industries.

FLIPPING ACTIVITY AND UNDERPRICING PHENOMENON IN INDONESIA STOCK EXCHANGE

Underwriters, as well as issuers, show ambiguity toward the flipping activity or selling initially public offered stocks (IPO stocks) in the first trading day. On one side, they are naturally against the flipping activity because it is considered to decrease IPO performances, especially in the case of weak offerings. However, flipping activity is also needed to show liquidity of the IPO stock in the secondary market. Several studies indicate that there is a relationship between flipping activity and underpricing phenomenon. Previous research also shows that by studying flipping activity, we can also learn about disposition effect in the primary market. In this study we investigate the relationship between flipping activity and underpricing phenomenon and the presence of disposition effect in Indonesian primary market. Further, the study also test whether the investors’ decision to flip the underpricing stock is a rational decision or because of the fear of regret. The result shows that disposition effect is not found in Indonesian primary market. We also found that there are different level of flipping activities in different level of underpricing, and investor’s decision to flip the underpricing stocks is actually a rational decision.

An Empirical Study on Internet IPO Performance

This study analyzes the performance of large 86 IPO Internet firms during the period 1993-2013. The study documented an average initial one-day return of 29.82% for internet IPOs. The one-year average buy and hold return for IPO stocks was 30.86 %. The excess five year buy and hold return for IPO internet stocks averaged approximately 60.72% compared with the market index. On a comparative basis, the returns for the IPO internet stocks have increased in magnitude substantially during the five-year period after listing. The average initial one-day return was higher for Nasdaq listed Internet firms compared to NYSE listed stocks. But the five year buy and hold return for internet stocks listed in the NYSE was approximately three times that of Nasdaq listed stocks. The regression results documents evidence to show that size is positive related to IPO returns. The study suggests that the long term returns (five year buy and hold excess return) is lower for firms listed during the recession and dot com bubble period.

THE IPO UNDERPRICING IMPACT ANALYSIS OF SPLIT SHARE STRUCTURE REFORM IN CHINA

When all the stocks are circulating in a hot market, Ljungqvist, Nanda, Singh(2003)(referred to as LNS model) first researched the IPO underpricing based on investor sentiment and proved that the optimal decision of underwriter is to oer stocks by many times. IPO underpricing is to compensate for the risk that the hot market will end too early. Combining LNS model with the split share structure in China, this paper researches the impact of split share structure on IPO underpricing, and poses a systematic theoretical model and proves the rationality of theoretical model through analysis of empirical. First, we analyze the case that the issuer sells IPO stock directly (direct selling) based on split share structure. The issuer is best to oer shares with many times to get a higher profit. Second, we also analyze the case that the issue chooses underwriter to sell IPO stock (underwriting) when the stock market exists split share structure. This case is divided into two cases: the underwriter has no non-tradable shares or has some non-tradable shares. The underwriter is also best to oer shares with many times. Compute the models of IPO underpricing of the two cases with maximum profit of the issuer and underwriter’s participation constraint. Through the models, we can see that the reform of split share structure does reduce the size of IPO underpricing with some requirements on the price and quantity of non-tradable shares. This also promotes Chinese stock market to further developing and mature.

감사인 명성과 감사자원 투입수준이 상장이후 공모주 수익률에 미치는 영향

감사인 명성과 감사자원 투입수준이 상장이후 공모주 수익률에 미치는 영향

Investor Education and IPO Participation

ABSTRACTThis study analyzes how the educational characteristics of investors affect their participation in initial public offerings on the stock market. We use a unique dataset from the Tallinn stock exchange that combines the stock market transactions of a full business cycle from 2004 to 2012 with an official educational dataset. Having controlled for gender, age, wealth, and investor trading behavior, we find empirical evidence that investors with better high-school exam results in mathematics and high-school leavers without an academic degree are less likely to participate in an IPO. The opposite is true for investors who have higher education, a bachelor’s degree or a degree in the social sciences, economics or public administration, who are all more likely to participate in an IPO. We find that the long-term returns of IPO stocks underperform benchmark index returns.

Divergences of Opinion and Long Term Performance of Post Stocks Initial Public Offerings at Indonesia Stock Exchange

This study examines and analyzes the effect of divergence of opinion on long-term performance of stock post IPO with initial return control variable, firm size, offering size, reputation of underwriter and return on equity. The study was conducted using 2004-2013 data, with 157 IPO companies in Indonesia capital market. The test is done by using multiple linear regression. The results of this study found that the divergence of opinion has a positive effect on the long-term performance of post-IPO shares. This occurs in the long-term performance period of post-IPO shares with an abnormal cumulative measurement of return12 months, 24 months. The result of opinion divergence regression and variable of all control with long term performance of stock post IPO revealed significant result at period of 12 months and 36 months. By measuring the buy and hold of abnormal returns, the opinion regression divergence with the long-term performance of post-IPO shares is significant in the 12-month period. The regression result of opinion divergence and all control variables with long-term performance of post-IPO shares is significant in the period of 12 months and 24 months. Variable characteristics of companies that are considered by investors in IPO stock transaction are firm size, initial return, offer size and reputation of underwriter. The implication of this study shows that risk factors play an important role in long-term performance of post-IPO shares.

The impact of management on under-pricing at IPO and subsequent initial stock trading

Can a company's management increase company's income prior to an initial public offering (IPO), for example, by hiring an underwriter and an auditor with high reputation? Does this result in under-pricing during the IPO? We study the influence of: 1) earnings management; 2) the underwriter's reputation; 3) the auditor's reputation on under-pricing and trading volume during the stabilisation period. The theoretical underpinnings of this research include agency theory, signalling theory and cognitive bias theory. The initial hypothesis is tested using an independent samples t-test comparing means. Other hypotheses are tested using ordinary least square regression. We find that prior to the IPO, a company's earnings management and the reputations of the underwriter and auditor do influence under-pricing while earnings management does not. Furthermore, under-pricing increases the trading volume during stabilisation period.

Short selling around the expiration of IPO share lockups

Abstract We are the first to examine daily short selling activity around the expiration of IPO share lockups. We find that short selling increases before the lockup expiration date and declines afterward, and the level of short selling is higher in stocks of venture capital (VC)- and private equity (PE)-backed IPOs than other IPOs. Unlike VC-backed IPO stocks, PE-backed IPO stocks do not experience a negative return or a trading volume jump on the lockup expiration date. PE investors do not reduce percentage ownership in the IPO firm as much as VC investors do after lockup expirations. Short selling in PE- and VC-backed IPO stocks prior to the lockup expiration date can predict PE and VC ownership reduction but not the stock returns after the lockup expires. In contrast, short selling in stocks of the IPO firms without a PE or VC investor can predict stock returns after the lockup expires.

IPO valuation and offering size

Using a sample of 4441 IPOs from the US, we find that IPO firms with larger proportional offering size have lower valuation. The sizes of both primary share offering and secondary share offering are negatively related to IPO firm valuation. The valuation measures are positively related to the levels of capital expenditure and R&D before IPO, lending support to explanations based on Jensen (JAMA 76:323–329, 1986)’s free cash flow hypothesis. We also find evidence consistent with negative signals from larger secondary share offering size. Results of tests about long-run IPO stock performance do not support the hypothesis that IPO stock demand curve is downward sloping.

Does franchising matter on IPO performance?

PurposeThis paper has two main purposes. First, this paper aims to examine whether pre-initial public offering (IPO) franchising activity of issuing firms is priced in the financial markets and results in pricing differential between franchising and non-franchising firms at the time of IPO. Second, the paper aims to find out whether firms with pre-IPO franchising achieve better post-IPO stock performance compared to non-franchising firms.Design/methodology/approachTo test research hypotheses, empirical models were developed and tested through ordinary least square regression analysis. Several data sources were used including Thomson One Banker’s SDC database, Compustat/CRSP and IPO prospectuses.FindingsThe paper provides further insights to the underpricing phenomenon surrounding IPOs and long-run performance of IPO shares subsequent to listing. Particularly, the study reveals that franchising firms underprice their issues to a higher degree compared to non-franchising firms, and franchising positively affects the post-IPO benchmark adjusted cumulative abnormal returns (CARs) over a three-year observation period.Research limitations/implicationsBecause the study tests the proposed hypotheses using data only from the restaurant industry, the research results may lack generalizability. Therefore, researchers are encouraged to test similar hypotheses using larger sample sizes from other industries.Practical implicationsThe study’s findings have important implications both for IPO issuers in positioning their offering and for IPO investors in comparing IPO stocks and forming long-run portfolios.Originality/valueThis paper contributes both to the IPO and franchising literatures by providing primary insights about how investors perceive pre-IPO franchising and incorporate their perception into their pricing at an IPO.

OPTIMASI PORTOFOLIO MENGGUNAKAN RESAMPLED EFFICIENT FRONTIER MEAN-VARIAN

AbstrakDi dunia pasar modal khususnya pasar investasi, pembentukan portofolio adalah hal yang harus dipahami oleh para investor. Pembentukan portofolio dilakukan investor untuk memaksimalkan keuntungan yang sebanyak-banyaknya dengan meminimalkan resiko kerugian yang mungkin terjadi. Tujuan seperti itu dikatakan sebagai portfolio yang efficient. Resampled efficient adalah konsep baru dalam pembentukan portofolio yang dikenalkan oleh Michaud. Portofolio Resampled efficient frontier tersusun atas bobot asset yang merupakan hasil rata-rata dari bobot-bobot efisien Mean-varian dengan tingkat return tertentu. Prosedur ini menjamin setelah merata-rata bobot efisien mean-varian portofolio akan tetap sama dengan satu. Pada optimasi portofolio, tingkat resiko adalah hal yang harus diperhatikan, tingkat resiko diukur dengan Value at Risk (VaR) yang disimulasikan dengan simulasi Montecarlo. Pada artikel ini digunakan saham IPO untuk menentukan optimasi bobotnya. Untuk saham-saham IPO, kecendrungan kerugian lebih besar daripada saham-saham yang sudah mapan meskipun return pada saham-saham IPO positif tapi perubahannya untuk pembentukan portofolio yang efisien cenderung adanya negatif.

Price performance following stock’s IPO in different price limit systems

An IPO burst occurred in China’s stock markets in 2015, while price limit trading rules usually help to reduce the short-term trading mania on individual stocks. It is interesting to make clear the function of the price limits after IPOs. We firstly make a statistical analysis based on all the IPO stocks listed from 1990 to 2015. A high dependency exists between the activities in stock’s IPO and various market environment. We also focus on the price dynamics in the first 40 trading days after the stock listed. We find that price limit system will delay the price movement, especially for the up-trend movements, which may lead to longer continuous price limit hits. Similar to our previous work, many results such as “W” shape can be also observed in the future daily return after the price limit open. At last, we find most IPO measures show evident correlations with the following price limit hits. IPO stocks with lower first-day turnover and earning per share will be followed with a longer continuous price limit hits and lower future daily return under the newest trading rules, which give us a good way to estimate the occurrence of price limit hits and the following price dynamics. Our analysis provides a better understanding of the price dynamics after IPO events and offers potential practical values for investors.

Financial Conglomeration, IPO Underwriting, and Allocation in Japan

We examine whether financial conglomeration enhances efficiency of capital allocation or conflicts of interest, focusing on pricing and allocation of IPO stocks in Japan. Regarding underwriting of IPO stocks, our results are consistent with the bank certification hypothesis. As for IPO allocation, the main bank underwriters allocate little to mutual funds, but when they do, they allocate the more underpriced IPOs to unaffiliated mutual funds. We also find some locally consistent evidence supporting the nepotism hypothesis in aftermarket returns of IPO shares. Bank-involved allocation to mutual funds is, however, unrelated to risk-adjusted return (i.e., real quality) and to bank loan reduction in the aftermarket. Overall, the main banks and underwriters do not co-work to allocate new shares in a way that further certifies IPO quality, prompting institutional investors to hold longer in the aftermarket. This is in sharp contrast to U.S. IPO share allocation practice.