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Initial returns: underpricing or overevaluation? Evidence from easdaq and euronm
Manigart, Sophie De Maeseneire, Wouter
Manigart, Sophie
De Maeseneire, Wouter
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Publication Type
Working paper
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Supervisor
Publication Year
2003
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Book
Publication Volume
Publication Issue
11
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Publication End page
Publication NUmber of pages
48
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Abstract
This paper investigates initial returns of Easdaq and EuroNM IPOs and explains part of these returns. Average first day return of 300 IPOs introduced before October 1, 1999, is 36.01 %. The most significant explanatory variable is the mean return of previous IPOs, indicating that high initial returns are caused by too high first trading prices due to investor overreaction and positive market sentiment. Riskier IPOs present substantially higher initial returns. Venture capitalists are not able to significantly reduce initial returns, nor does size of the IPO influence initial returns. Our results indicate that high initial returns are caused by underpricing as well as overvaluation. Keywords: underpricing, investor sentiment, IPOs, initial returns
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Corporate Finance