Study on IPO Underpricing and Long-Run Aftermarket Performance in Hong Kong (International Journal of Business & Management Studies)

Summary

• The study analyzes a sample of 598 IPOs listed on the Stock Exchange of Hong Kong (SEHK) between 2006 and 2013.p.1
• IPOs in Hong Kong generated an average first-day initial return of 16.2%, demonstrating persistent short-run underpricing.p.1
• Over a two-year aftermarket period, IPOs produced an average market-adjusted return of approximately −8%, indicating significant long-run underperformance.p.1
• IPOs oversubscribed by over 225 times in 2006 and 2007 achieved initial returns of approximately 24%.p.7
• Offer prices set at the maximum of the indicative filing price range recorded an average initial market-adjusted return of 24.59%.p.8

Key insights

1. Across the entire sample, 71.07% of the analyzed IPOs yielded positive initial returns.p.5
2. Initial performance was largely corrected in the early aftermarket, with mean raw returns falling to -0.30% after one month.p.5
3. IPOs issued during 2008 recorded the highest two-year market-adjusted return of 23.30%, despite corresponding to the lowest issuance volume of 27 listings.p.6
4. In contrast, IPO issuance peaked in 2010 with 100 listings but delivered the lowest two-year market-adjusted return of -23.67%.p.6
5. IPOs priced at the maximum price range exhibited an initial raw return of 24.63%, compared to 0.54% for IPOs priced lower than the midpoint.p.8
6. IPOs set at the maximum price range suffered the weakest long-run performance, recording an average two-year raw return of -23.34%.p.9