Underpricing of Norwegian IPOs: Empirical testing of selected underpricing theories on the Oslo Stock Exchange from 2003 to 2012

Fredrik Falck

Student thesis: Master thesis


In this thesis I investigate the pricing of 117 IPOs in Norway from 2003 to 2012. I focus on the phenomenon known as IPO underpricing which is the trend that IPO shares are usually offered to the public too cheaply, resulting in a seemingly irrational capital loss for the previous shareholders. I have attempted to prove or disprove a selection of testable underpricing theories in order to see if I can explain the phenomenon for the IPOs on the Oslo Stock Exchange. I find an average underpricing of 3.17% on the Oslo Stock Exchange from 2003 to 2012, which is in line with the results of similar Norwegian studies. The finding is statistically significant at the 1% significance level. The selected underpricing theories, on the other hand, do not seem to explain much of this observed underpricing. My results show that theories such as “the Winner’s Curse” and Investor Sentiment theory do not succeed in clarifying the underpricing puzzle. However, my findings point towards some support of the information revelation theory as I find that IPOs for which favorable information has been revealed during the IPO process are significantly more underpriced. This supports Hanley’s (1993) Partial Adjustment Theory which claims that positive information about the IPO is only partially adjusted for, leaving some underpricing as a reward for investors who revealed their positive information. It should, however, be noted that this theory only succeeds in explaining some, but not all of the observed underpricing. My analysis is tested and corrected for possible econometric issues and my findings appear to be quite robust. As most of the selected underpricing theories cannot explain much of the observed Norwegian underpricing, there is room for further research within this topic using alternative or new theories. I want to thank my supervisor, Gabriele Lepori, who has provided me with much appreciated insights, creative suggestions and constructive feedback throughout my work with this thesis. In addition, I want to thank the statistics team at the Oslo Stock Exchange, whose published data made it possible for me to perform my analysis. Lastly, I am grateful for the assistance from the CBS library staff in retrieving necessary data from the Bloomberg and Reuters data terminals.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2013
Number of pages104