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The short-run price performance of investment trust IPOs on the UK main market

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  • Arif Khurshed
  • Ram Mudambi

Abstract

The short run underpricing of initial public offerings (IPOs) is one of the best-documented anomalies in finance. The Rock model explains this anomaly in terms of horizontal information asymmery amongst investors. In this paper comprehensive IPO data from the UK main market for the period 1989-1996 are used to test the Rock model against several other alternatives. It is proposed that horizontal information asymmetry should be smaller for investment trust IPOs as compared to conventional issuing companies. The Rock model then predicts that investment trust IPOs should display less underpricing than conventional issuing companies. The findings support the Rock model and are consistent with previous studies of investment trust IPOs.

Suggested Citation

  • Arif Khurshed & Ram Mudambi, 2002. "The short-run price performance of investment trust IPOs on the UK main market," Applied Financial Economics, Taylor & Francis Journals, vol. 12(10), pages 697-706.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:10:p:697-706
    DOI: 10.1080/09603100010025706
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    Cited by:

    1. Beat Reber & Bob Berry & Steve Toms, 2005. "Firm resources and quality signalling: evidence from UK initial public offerings," Applied Financial Economics, Taylor & Francis Journals, vol. 15(8), pages 575-586.
    2. João Batista Amorim Toniato, 2007. "“Hot Issue” IPO Markets and its Consequences for Issuing Firms and Investors: The UK Market of 2000," Brazilian Business Review, Fucape Business School, vol. 4(1), pages 1-26, January.
    3. Mudambi, Ram & Treichel, Monica Zimmerman, 2005. "Cash crisis in newly public Internet-based firms: an empirical analysis," Journal of Business Venturing, Elsevier, vol. 20(4), pages 543-571, July.
    4. Michael Highfield & Patrick Lach & Larry White, 2008. "The quiet period is making noise again," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1363-1378.
    5. Adjasi, Charles K.D. & Osei, Kofi A. & Fiawoyife, Eme U., 2011. "Explaining underpricing of IPOs in frontier markets: Evidence from the Nigeria Stock Exchange," Research in International Business and Finance, Elsevier, vol. 25(3), pages 255-265, September.

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