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Short-Run Pricing Performance of Local and Dual Class IPOs in Alternative Investment Market

Author

Listed:
  • Abdul WAHID

    (NUML School of Business, National University of Modern Languages (NUML), Islamabad.)

  • Muhammad Zubair MUMTAZ

    (School of Social Sciences and Humanities (S3H), National University of Science and Technology (NUST), Islamabad.)

  • Edmund H. MANTELL

    (Lubin School of Business, Pace University, 1 Pace Plaza , New York, N.Y. 10038.)

Abstract

In most of the traditional markets, one may observe a rapid escalation in the trading prices of many IPOs on the listing day. The closing price of new issues on the first trading day is often much higher than the offering price six hours earlier. The price dynamic varies among markets and has never been satisfactorily explained. This study examines the short-run performance of IPOs issued in an Alternative Investment Markets (AIMs). In this study, we apply the Extreme Bounds Analysis (EBA) to predict the robust factors which explain the behavior towards short-run pricing performance of unseasoned issues. We conclude that, on average, IPOs are underpriced by 2.48%, 2.62% and 2.16% on the first, fifteenth and thirtieth day of trading, respectively. In addition, we find that demutualized IPOs are less underpriced than local IPOs. However, cross-listed IPOs are more underpriced on the fifteenth and the thirtieth day of trading relative to local and demutualized IPOs. This study concludes that the offer price is the most robust determinant of the short-run performance of unseasoned issues. This finding implies that a lower offer price leads to greater probability of underpricing. The results of the study have a practical value for those investors who are especially interested in earning abnormal excess returns in an AIM.

Suggested Citation

  • Abdul WAHID & Muhammad Zubair MUMTAZ & Edmund H. MANTELL, 2020. "Short-Run Pricing Performance of Local and Dual Class IPOs in Alternative Investment Market," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 57-74, March.
    • Handle: RePEc:rjr:romjef:v::y:2020:i:1:p:57-74
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    References listed on IDEAS

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    1. Abdul Wahid & Muhammad Zubair Mumtaz, 2020. "Long-run price performance of local and dual class IPOs in alternative investment market," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(1), pages 71-100.

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    More about this item

    Keywords

    short-run price performance; local IPOs; dual class IPOs; extreme bounds analysis; alternative investment market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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