Underprissætning og langsigtet performance af skandinaviske børsintroduktioner 2000-2009

Søren Berg

Student thesis: Master thesis


Initial Public Offerings seems to be a unique type of investment. Obtaining a first day return in excess of the market at 9.3% in the Scandinavian IPO’s from 2000 to 2009 emphasize this. This is in line with findings in Ritter (1991) and Ritter and Welch (2002), which has performed analysis of the American IPO’s the last four decades. In addition the analysis shows that the IPO’s underperform in the long run, using the market as well as a comparable firm with same risk as the control portfolio. Moreover there is a negative relationship between the performance over 3 year of the IPO’s with the lowest and highest initial return. The negative correlation should be seen as sign of an overreaction from the investors at the first day. This is directly observed; none of the following days after the offering the new stock receives a daily return that is close to the initial return. In contrast the opposite happens; after the first month the cumulative return contains only two thirds of the initial return. The widespread conclusion to a high initial return, have for a long time been founded in underpricing, where supporters argue that the IPO must have a too low offering price. This thesis partially supports this, but also argues for another explanation. The abnormal initial return should be seen in the light of overoptimistic investors and tells us that it is the investors – not the issuing firm – that leaves moneys on the table.1 Equivalent results are suggested by Ritter (1991) – the offering price is not too low, but the aftermarket price is too high.2 A sign of optimism is also observed; when the offer price increases, the initial return increases as well. Attention seems to push the first day return up, where a recent study by Vakrman and Kristoufek (2015) finds that IPO’s receive a higher return when the attention is above average - measured in terms of search on Google. In this context, Kahneman and Tversky (1974) emphasize that individuals weights new and prominent events, or in this instances IPO’s, too high. In the long run the firm going public is just, on average, another firm on the exchange, but the investors weight the offering to high because of the news effect, which results in the high first day price. The positive correlation between the return of an IPO and the market and recent IPO’s, in this Scandinavian analysis, can be an indicator of non-irrationality, which says that investors are periodically over optimistic, where a simple analysis of the firm’s intrinsic value falls in the background. The fact that investors propensity to invest in an IPO is dependent of a good experience with a previous IPO underlies this

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2015
Number of pages166