UK IPOs: Long Run Returns, Behavioural Timing and Pseudo Timing

In this paper we examine a comprehensive set of 2,499 UK IPOs launched between mid‐1975 and the end of 2004. We find compelling evidence of long run under‐performance that persists for between 36 and 60 months post‐flotation, depending on the precise method chosen to measure abnormal returns. Following Schultz (2003), we ask whether our results are consistent with ‘pseudo‐timing’. Equally‐weighted returns in calendar time provide further evidence of under‐performance, a result that favours the Loughran and Ritter (2000) behavioural timing hypothesis rather than the Schultz (2003) pseudo‐timing hypothesis. However, we show that this under‐performance is concentrated in AIM and USM stocks. When we measure value‐weighted returns in calendar time we find that abnormal returns are not significantly different from zero. Further analysis shows that, consistent with the findings of other studies, IPO under‐performance is concentrated in smaller firms.