High Return Of The Ipo Essays

High Return Of The Ipo Essays

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Previous studies have documented a clearly high return of IPOs in the short term and a generally negative return in the long run.
Short-Run Underprice
Ibbotson (1975) founded the first year return of the IPO was on average above zero, however, there exist a negative performance in the following three years. He concluded a generally short term under-priced and a long term underperformance for the companies after going public.

Long-Run underperformance
Ritter (1991) documented the long-run performance of the initial public offering is typically under-perform the benchmark. Ritter studied the three year performance of US IPOs issued during 1975-84 and argues the under-price of the IPO only exist in a short period and disappear quickly after the first trading day, for companies with similar size, and in the same industries, the three year performance after going public are significantly below the market.

Model to measure the return
Barber and Lyon (1997) had compared the methods in measuring the abnormal return of the stocks. Since Ritter (1991) first argued that the cumulating abnor...

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