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Initial returns: underpricing or overvaluation ? Evidence from easdaq and euronm

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Author Info
Sophie Manigart ()
Wouter De Maeseneire (Vlerick Leuven Gent Management School)

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Abstract

This paper investigates initial returns of Easdaq and EuroNM IPOs and explains part of these returns. Average first day return of 300 IPOs introduced before October 1, 1999, is 36.01 %. The most significant explanatory variable is the mean return of previous IPOs, indicating that high initial returns are caused by too high first trading prices due to investor overreaction and positive market sentiment. Riskier IPOs present substantially higher initial returns. Venture capitalists are not able to significantly reduce initial returns, nor does size of the IPO influence initial returns. Our results indicate that high initial returns are caused by underpricing as well as overvaluation.

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Publisher Info
Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2003-11.

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Length: 47 pages
Date of creation: 12 May 2003
Date of revision:
Handle: RePEc:vlg:vlgwps:2003-11

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Related research
Keywords: underpricing; investor sentiment; IPOs; initial returns;

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  1. Michael Stolpe, 2003. "Learning and Signalling in the French and German Venture Capital Industries," Kiel Working Papers 1156, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  2. D. Van Den Poel, 2003. "Predicting Mail-Order Repeat Buying: Which Variables Matter?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/191, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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This page was last updated on 2009-12-13.

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