Abnormal Returns in the Context of Investor Sentiment: Testing the Hot IPO Market Cycle in Borsa Istanbul (Fiscaoeconomia)

Summary

• The study analyzes the short-term return performance and investor sentiment for 89 companies that completed initial public offerings on Borsa Istanbul, comprising 56 in 2023 and 33 in 2024.p.1
• In 2023, IPO shares experienced an uninterrupted positive average abnormal return trend until the 8th trading day, achieving a cumulative average abnormal return of 55.20% by the 20th day.p.1
• In 2024, the positive abnormal return movement lasted only until the 2nd trading day, with the 20th-day cumulative average abnormal return dropping to 24.50%.p.1
• Total investor demand for 2023 IPOs reached approximately 38 billion lots against planned allocations of 3.94 billion lots, representing a demand multiple of 9.6 times.p.6
• In 2024, approximately 2.24 billion lots were distributed with investor demand falling to 7.7 billion lots, resulting in a demand multiple of 3.4 times.p.6
• The total number of participants receiving IPO shares dropped by 53% from approximately 123 million in 2023 to 58 million in 2024.p.6

Key insights

1. Significant positive abnormal returns occurred on the first trading day in both 2023 and 2024, strongly supporting the underpricing anomaly in Borsa Istanbul.p.1
2. The 2023 IPO market exhibited classic hot issue market characteristics driven by high investor sentiment and irrational exuberance.p.1
3. In 2024, the IPO market converged toward a rational equilibrium as market enthusiasm cooled and investor participation normalized.p.1
4. Multiple linear regression analysis showed that IPO size had a statistically significant negative impact on cumulative abnormal returns.p.1
5. Investor demand levels relative to allocation had a statistically significant positive effect on short-term cumulative abnormal returns.p.12
6. Company age and free float ratio had no statistically significant effect on cumulative abnormal returns following an IPO.p.12
7. The statistical insignificance of the year dummy variable confirms that return differences stemmed from shifts in investor sentiment rather than a simple calendar effect.p.1
8. Macroeconomic policy shifts, such as the Central Bank raising policy rates from 8.50% in June 2023 to 50.00% in 2024, created high-yield risk-free alternatives that dampened IPO speculation.p.14