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Long-run performance analysis of a new sample of UK IPOs

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  • Eric Brown

Abstract

36 month buy-and-hold returns are calculated for a recent sample of initial public offerings (IPOs) on UK stock markets in order to test the robustness of earlier results which suggest that IPOs deliver abnormally low long-run returns. A bootstrapped and skew-adjusted t statistic is employed. Overall, there is little evidence of significant abnormal long-run performance. Further tests reveal that the electronics and information technology IPOs experienced by far the highest initial returns but their long-run abnormal performance was poor. This may be the result of chance, or alternatively the sector may offer an isolated area of empirical support for theories of irrational stock market behaviour.

Suggested Citation

  • Eric Brown, 1999. "Long-run performance analysis of a new sample of UK IPOs," Edinburgh School of Economics Discussion Paper Series 41, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:41
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    File URL: http://www.econ.ed.ac.uk/papers/id41_esedps.pdf
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    References listed on IDEAS

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    1. 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.
    2. Mario Levis, 1995. "Seasoned equity offerings and the short‐ and long‐run performance of initial public offerings in the UK," European Financial Management, European Financial Management Association, vol. 1(2), pages 125-146, July.
    3. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    4. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    5. Ibbotson, Roger G., 1975. "Price performance of common stock new issues," Journal of Financial Economics, Elsevier, vol. 2(3), pages 235-272, September.
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    Cited by:

    1. Radha Shiwakoti & Robert Hudson & Helen Short, 2005. "A study of the initial returns and the aftermarket performance of initial public offerings of demutualized building societies in the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 403-409.
    2. Sze Kim Chin & Nur Adiana Hiau Abdullah, 2013. "Announcements Effect of Corporate Bond Issuance and Its Determinants," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(1), March.

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    More about this item

    Keywords

    abnormal security returns; bootstrapped t-statistic; noise traders;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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