Assessing Risks from Market-Price Volatility and Initial IPO Returns of Foreign IPOs

Initial Public Offerings (IPOs) are often followed with a great deal of excitement by financial analysts. These companies are making a sudden transition from privately-held to publicly-traded. Many of these companies move from being relatively small and obscure to relatively large and subject to Securities and Exchange Commission (SEC) disclosure and oversight. Successful IPOs permit corporations to raise a substantial amount of capital for expansion or new ventures in a matter of days or weeks. IPOs present both significant risks and opportunities to the investors. The number of domestic IPOs increased tremendously during the late 1990's. In recent years, the financial markets have seen a significant number of foreign IPOs.This study examines the risks resulting from market-price volatility of foreign companies that went public during the twelve months ending May 16, 2007. The study also compares this measure of risk to IPO discounts (or premiums) as measured by the differences between the stocks' initial IPO prices and the stocks' prices three months after the IPO. The findings of this study confirm some relationship between price volatility and discounts. The results also suggest that risk differences exist between IPOs of companies in western nations versus Asian nations. (This study did not examine foreign IPOs versus U.S. IPOs.)