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Investigating Overreaction and Underreaction in Initial Public Offerings

Author

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  • Samuel Tabot Enow

    (The IIE Vega school, 444 Jan Smuts Ave, Bordeaux, Randburg, 2194, South Africa)

Abstract

Investors often overreact and underreact to new information in stock markets which has an exaggerated effect on the stock price. This has led to possible mispricing of Initial public offering. The aim of this study was to investigate overreaction and underreaction for selected stocks in the Frankfurt stock exchange. This study employed a Threshold GARCH model on a sample of eight initial public offerings from 2017. The findings of this study revealed the presence of overreaction and underreaction in the selected stocks where the leverage coefficients were found to be statistically significant in some cases. These findings provide valuable insights as the high risk of investing in initial public offerings may not be compensated for the level of return. Also, investors can minimise the risk of investing in initial public offerings by adding a risk coefficient to their pricing.

Suggested Citation

  • Samuel Tabot Enow, 2024. "Investigating Overreaction and Underreaction in Initial Public Offerings," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 172-177, July.
    • Handle: RePEc:eco:journ1:2024-04-19
    as

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    References listed on IDEAS

    as
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    5. Gillian van Heerden & Paul Alagidede, 2013. "Short Run Underpricing of Initial Public Offering (IPOs) in the Johannesburg Stock Exchange (JSE)," Working Papers 344, Economic Research Southern Africa.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Overreaction; Underreaction; Initial Public Offering; TGARCH;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G4 - Financial Economics - - Behavioral Finance

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