| Abstract [eng] |
The primary aim of the master thesis is to perform an exploration of Initial Public Offering (IPO) investment returns in order to provide clear and concise profit maximising exit strategy recommendations for the non-professional (retail) investor. To achieve this, the following objectives are set: to investigate the level of underpricing and its determinants, to examine long-term post-IPO returns (1 day – 1 year) and evaluate the influence of lock-up expiry on cumulative abnormal returns (CARs) in the event window. The thesis is split up into several sections, the first of which tackles the theoretical framework of the IPO market and synthesizes the available literature, covering topics such as the role and influence of the underwriter, bookbuilding and allocation, informational asymmetry, investor sentiment, IPO clustering, and other factors affecting the persistently observed underpricing phenomenon, as well as post-IPO performance. Focusing on a sample of 2229 US market IPOs from the 21st century, a combination of intercept-only models, linear panel regressions and cumulative abnormal returns (CARs) are computed, tested, and adjusted accordingly. The empirical review finds statistically significant positive benchmark adjusted initial returns (underpricing), short-term positive momentum up to around 1-month post IPO, followed by a subsequent decline compared to the benchmark index for the next 11 months of the event study window. A statistically significant negative lock-up expiry effect is also observed. The data shows a statistically significant effect on Underpricing by the underwriter quality, industry and IPO clustering (hot and cold markets), while size factor and issuer domicile exhibit no statistically significant impact within the sample. Apart from a detailed summary of the above findings, the final chapter of the thesis also contains practical takeaways and recommendations for non-professional investors regarding profit maximising exit strategies in the IPO market, suggesting a focus on short-term investment horizons of no longer than one month, even for those who are not able to get access to the IPO at the offer price and instead purchase at the opening price on the day of the IPO. Recommendations for further potential extensions to the study are also made. |
