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Does it pay to invest in IPOs? Evidence from the Warsaw Stock Exchange

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  • Rafał Sieradzki

    (Cracow University of Economics, National Bank of Poland)

Abstract

In this paper we analyze IPO underpricing on the Warsaw Stock Exchange between 2003 and 2011. The average initial return was positive (14.2%), which is similar to the findings on other equity markets. Medium and long-run abnormal returns (1- month, 3-months and 1-year) on average are negative and they show great standard deviations. In general, the more time elapses from the offer day the lower the return from the IPO investment is. The abnormal initial return (AIR) was 2.9% which suggests that although in net terms IPO investments were profitable for investors the rate of return was quite small. Using leverage did not help much to boost returns. Not surprisingly the highest initial returns yielded IPOs of private domestic companies and (what is more striking) offers made by companies that migrated to the WSE from RPW CeTO market or NewConnect platform. This observation goes against information asymmetry theories of IPOs underpricing. Also the abnormal initial return was the highest in case of the latter companies. Four determinants of IPOs underpricing proved to be significant at 0.001 level including: Parkinson’s Extreme Value, reduction rate, fad and turnover ratio. These variables explain over 34% of the IPOs initial returns.

Suggested Citation

  • Rafał Sieradzki, 2013. "Does it pay to invest in IPOs? Evidence from the Warsaw Stock Exchange," NBP Working Papers 139, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:139
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    References listed on IDEAS

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    1. Ritter, Jay R, 1984. "The "Hot Issue" Market of 1980," The Journal of Business, University of Chicago Press, vol. 57(2), pages 215-240, April.
    2. Yu, Ting & Tse, Y.K., 2006. "An empirical examination of IPO underpricing in the Chinese A-share market," China Economic Review, Elsevier, vol. 17(4), pages 363-382.
    3. Jay R. Ritter, 2003. "Differences between European and American IPO Markets," European Financial Management, European Financial Management Association, vol. 9(4), pages 421-434, December.
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    Cited by:

    1. Tomas Meluzin & Marek Zinecker, 2016. "Trends In Ipos: The Evidence From Cee Capital Markets," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(2), pages 327-341, June.
    2. Kao, Lanfeng & Chen, Anlin, 2020. "How a pre-IPO audit committee improves IPO pricing efficiency in an economy with little value uncertainty and information asymmetry," Journal of Banking & Finance, Elsevier, vol. 110(C).
    3. Pawel Perz, 2017. "The Activity of Family Businesses and the Phenomenon of Underpricing of Their Shares in IPOs in Poland in the Years 2013–2015 (Aktywnosc firm rodzinnych i zjawisko niedowartosciowania ich akcji w pier," Research Reports, University of Warsaw, Faculty of Management, vol. 1(23), pages 153-161.
    4. Polona Peterle & Ales S. Berk, 2016. "IPO Cycles in Central and Eastern Europe: What Factors Drive these Cycles?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(2), pages 113-139, April.
    5. Małachowski Paweł & Gadowska-dos Santos Dominika, 2021. "What Determines the Success of an IPO? Analysis of IPO Underpricing on the Warsaw Stock Exchange," Central European Economic Journal, Sciendo, vol. 8(55), pages 1-14, January.
    6. Sofya Glavina, 2015. "Influence of Globalization on the Regional Capital Markets and Consequences; Evidence from Warsaw Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 117-134.

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    More about this item

    Keywords

    new equity offerings; IPOs; underpricing; investment strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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