Initial and Long-Run IPO Returns in Central and Eastern Europe
Emerging Market Finance and Trade, Vol. 51, Iss. 6, 2015
Posted: 21 Sep 2016
Date Written: September 19, 2016
Abstract
This article provides original evidence on IPO underpricing and long-run underperformance in Central and Eastern Europe (CEE) and compares results to the European Union’s developed capital markets from 2000 to 2009. Using both index-adjusted and CAPM-adjusted returns, we find significant underpricing that is significantly higher than underpricing of comparable IPOs in the European Union’s developed capital markets. We show that the CEE’s initial IPO returns also exhibit significantly higher volatility. In line with the asymmetric information theory, we indicate that smaller IPOs in the CEE region have greater underpricing than the larger IPOs. Contrary to the literature, we unambiguously confirm long-run underperformance toward the benchmarks. In some model specifications, we also find that IPO long-run underperformance in the CEE region is less present than in the European Union’s developed capital markets.
Keywords: emerging markets, financial intermediation, IPO long-run performance, IPO underpricing
JEL Classification: G14, G15
Suggested Citation: Suggested Citation