{"title":"Underpricing of IPOs during Hot and Cold Market Periods on the South African Stock Exchange (JSE)","authors":"Brownhilder N. Neneh, A. Van Aardt Smit","volume":79,"journal":"International Journal of Economics and Management Engineering","pagesStart":2021,"pagesEnd":2029,"ISSN":"1307-6892","URL":"https:\/\/publications.waset.org\/pdf\/16422","abstract":"
Underpricing is one anomaly in initial public offerings
\r\n(IPO) literature that has been widely observed across different stock
\r\nmarkets with different trends emerging over different time periods.
\r\nThis study seeks to determine how IPOs on the JSE performed on the
\r\nfirst day, first week and first month over the period of 1996-2011.
\r\nUnderpricing trends are documented for both hot and cold market
\r\nperiods in terms of four main sectors (cyclical, defensive, growth
\r\nstock and interest rate sensitive stocks). Using a sample of 360 listed
\r\ncompanies on the JSE, the empirical findings established that IPOs
\r\non the JSE are significantly underpriced with an average market
\r\nadjusted first day return of 62.9%. It is also established that hot
\r\nmarket IPOs on the JSE are more underpriced than the cold market
\r\nIPOs. Also observed is the fact that as the offer price per share
\r\nincreases above the median price for any given period, the level of
\r\nunderpricing decreases substantially. While significant differences
\r\nexist in the level of underpricing of IPOs in the four different sectors
\r\nin the hot and cold market periods, interest rates sensitive stocks
\r\nshowed a different trend from the other sectors and thus require
\r\nfurther investigation to uncover this pattern.<\/p>\r\n","references":"
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