What Can be the Explanation for the Underpricing on Oslo Stock Exchange for the Periode 2005-2017?

Beate Undem & Jenny Helseth Hektoen

Student thesis: Master thesis


The underpricing phenomenon has been documented through a number of surveys, for different geographic markets and periods. However, there is no consensus among theorists about why underpricing occurs. This thesis will explore some of the most recognized theories within the area to see if they can explain, why we detect a 2.76% underpricing for IPOs listed on Oslo Stock Exchange in the period 2005-2017. This will be done by quantifying theories through data proxies, for hereafter conducting a statistical test to see if there is a significant relationship between them and the underpricing. The selected theories are Beatty and Ritter (1986), Hanley (1993), Ibottson (1975) and Edlen and Kadlec (2005) within the category “Asymmetric information”, as well as Baker and Wruggler (2006) within the category “Behavioral explanations”. The thesis is divided in to six hypotheses to structure the paper in the best possible way. The first hypothesis relates to the level of significance for the detected underpricing for Oslo Stock Exchange from 2005-2017. The remaining five hypotheses each relates to a chosen theory, and their impact on the identified underpricing. A large amount of data was obtained to construct the most correct variable for each individual hypothesis. This led to the following variables being constructed: Volatilitet, Prisjustering, Multippel, Tilbakeholdelsesandel and Investor Sentiment. Some confounding variables were also included in the statistical analysis to separate the effect they may have on the dependent variable, underpricing. The statistical model was also tested for a number of econometric problems, to ensure the results’ robustness. The regression results show that the variables Prisjustering and Tilbakeholdelsesandel were significant on a 1% level, while Volatilitet was significant on a 5% level. The relation to each coefficient was consistent with our expectations of their impact on underpricing. This provided the basis for answering the thesis’ main research question “What can be the explanation for the underpricing on Oslo Stock Exchange for the period 2005-2017?”Our findings can therefore explain a part of the underpricing detected on Oslo Stock Exchange for the given time. The thesis’ results gave basis for further concluding that companies that wish to go public in the future can minimize the expected capital loss in relation to the IPO. This can be done by optimizing the owners retention rate, focus on finding the most correct price range ahead of listing, and lastly by presenting good and adequate information to investors, to minimize the volatility associated with the company.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2018
Number of pages214