New Evidence of Short-Run Underpricing in Australian IPOs

The short-run market performance of the initial public offerings (IPOs) indicates that the prices are often underpriced which is widely accepted as a universal phenomenon. To find out whether the Australian IPOs are underpriced, this paper analyses the short-run market performance of 254 IPOs by industry, listing year and issue year over the period 2006 to 2011.To measure the performance, the first listing day returns are divided into the first day opening price primary market and the closing price secondary market and further examine the post-day listing returns. The study found that overall the Australian IPOs are underpriced by 25.47% based on abnormal returns and 26.43% on raw returns on the first listing day primary market and it is statistically significant at 1% level. However, the secondary market analysis indicates that the Australian IPOs are overpriced by 1.55% and 1.54% on abnormal and raw returns respectively which is statistically significant at 5% level. The examination of post listing returns shows that Australian IPOs are underpriced based on cumulative abnormal returns (CARs) in the 3rd, 6th and 10th days by 24.63%, 24.06% and 23.34% respectively. The primary and post listing analysis shows that the industrial sector IPOs are more attractive to investors whereas the chemical and material sector IPOs are less attractive compared to other sectors .As far as the investors' wealth is concerned, the study concludes that the short-run market performance analysis should consider both the first day and post-day returns