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Ipo Behavior in Gcc Countries

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  • International Monetary Fund

Abstract

This paper documents the phenomenon of underpricing initial public offerings (IPOs) for 47 firms that went public between 2001 and 2006 in the equity markets of the six Gulf Cooperation Council (GCC) countries. The average initial abnormal returns of 290 percent exceed those found in the existing literature for both developed and emerging markets IPOs. Although the IPOs'' returns over the one-year horizon beat the market index benchmark, they present negative abnormal returns once initial returns are excluded, which is consistent with findings in other industrial and emerging markets. The empirical models reject the hypothesis that the IPOs'' performance is driven by the common independent variables employed in the literature. On the contrary, in the case of the GCC, country- and industry-specific characteristics, in addition to the timing of the offers, play key roles in explaining the abnormal returns of IPOs. This paper''s empirical findings support the hypothesis that investors initially tend to be over-optimistic about the performance of IPOs, but grow more pessimistic over time.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/149.

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Length: 34
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/149

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Related research

Keywords: Stock prices; Stock markets; statistics; equity markets; statistic; equation; independent variables; stock price; financial economics; stock price indices; stock market; skewness; stock exchange; standard deviation; kurtosis; descriptive statistics; samples; regression analysis; international financial statistics; financial statistics; dummy variable; equity market; stock exchanges; basic descriptive statistics; stock returns; covariance; dummy variables; financial market; autocorrelation; stock price index; financial sector; normal distribution; international financial markets; standard errors; statistical tests; explanatory power; statistical techniques; overvaluation; probability; deposit rates; equations; financial markets; deposit rate; outliers; estimation period; missing observations; standard deviations;

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References

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  1. Menyah, Kojo & Paudyal, Krishna & Inyangete, Charles G., 1995. "Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers," Journal of Economics and Business, Elsevier, vol. 47(5), pages 473-495, December.
  2. FranÁois Derrien & Kent L. Womack, 2003. "Auctions vs. Bookbuilding and the Control of Underpricing in Hot IPO Markets," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 31-61.
  3. Reena Aggarwal & Ricardo Leal & Leonardo Hernandez, 1993. "The Aftermarket Performance of Initial Public Offerings in Latin America," Financial Management, Financial Management Association, vol. 22(1), Spring.
  4. John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
  5. Loughran, Tim & Ritter, Jay R. & Rydqvist, Kristian, 1995. "Initial public offerings: International insights," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 139-140, May.
  6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
  7. Randall Morck & Andrei Shleifer & Robert W. Vishny, 1990. "The Stock Market and Investment: Is the Market a Sideshow?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 157-216.
  8. Welch, Ivo, 1989. " Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 421-49, June.
  9. Randolph P. Beatty & Jay R. Ritter, . "Investment Banking, Reputation and the Underpricing of Initial Public Offerings," Rodney L. White Center for Financial Research Working Papers 02-85, Wharton School Rodney L. White Center for Financial Research.
  10. Mohammed Omran, 2005. "Underpricing And Long-Run Performance Of Share Issue Privatizations In The Egyptian Stock Market," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 28(2), pages 215-234.
  11. Brav, Alon & Gompers, Paul A, 1997. " Myth or Reality? The Long-Run Underperformance of Initial Public Offerings: Evidence from Venture and Nonventure Capital-Backed Companies," Journal of Finance, American Finance Association, vol. 52(5), pages 1791-1821, December.
  12. Keloharju, Matti, 1993. "The winner's curse, legal liability, and the long-run price performance of initial public offerings in Finland," Journal of Financial Economics, Elsevier, vol. 34(2), pages 251-277, October.
  13. Agarwal, Sumit & Liu, Chunlin & Rhee, S. Ghon, 2008. "Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 176-190, April.
  14. Paudyal, K. & Saadouni, B. & Briston, R. J., 1998. "Privatisation initial public offerings in Malaysia: Initial premium and long-term performance," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 427-451, November.
  15. Jenkinson, Tim & Mayer, Colin, 1988. "The privatisation process in France and the U.K," European Economic Review, Elsevier, vol. 32(2-3), pages 482-490, March.
  16. Jaskiewicz, P. & González, V.M. & Menéndez, S. & Schiereck, D., 2005. "Long-run IPO Performance Analysis of German and Spanish Family-Owned Business," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35079, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
  17. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
  18. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
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Cited by:
  1. Mustapha K. Nabli & Rabah Arezki, 2012. "Natural Resources, Volatility, and Inclusive Growth," IMF Working Papers 12/111, International Monetary Fund.
  2. Rabah Arezki & Mustapha K. Nabli, 2012. "Natural Resources, Volatility, and Inclusive Growth: Perspectives from the Middle East and North Africa," OxCarre Working Papers 086, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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