SHORT-TERM PRICE-PERFORMANCE ANALYSIS OF INITIAL PUBLIC OFFERINGS: AN APPLICATION ON HEALTH INDUSTRY IN NYSE

Abstract

Purpose - The purpose of this study is to investigate short-term underpricing anomaly of IPOs in health industry firms in USA. This study tried to test short-term underpricing anomaly that suggests investors may able to get abnormal returns by purchasing stocks at issuance date and selling them after holding for short time period. Methodology – Analysis period is taken into consideration as first 7 days after the issuance. To conduct analysis in the study, a sample, which includes 12 listed firms, is built. Stock returns are calculated from issuance date until 7th day. First raw returns are calculated based on price movements of each IPO and then abnormal returns are calculated by comparing them to NYSE index return. In order to get smoother series to reflect normal distribution features, compound abnormal returns are calculated. Findings – Raw returns are positive but significant only on 5th day after issuance. Abnormal returns except for 2nd and 3rd day are positive but statistically significant only 5th day after issuance. Compound abnormal returns are positive except for 3rd day but similarly it is statistically significant on 5th day after issuance. Based on test results, an investor who purchased stocks at the issuance and hold them until 5th day would get higher return (abnormal return) by %0,71 and higher compound return (compound abnormal return) by %1,23 than market average. Conclusion – According to results of t-test, it can claimed that underpricing anomaly can be confirmed for the firms are traded in health industry in NYSE.

Keywords

• Price anomalies,underpricing anomaly,initial public offerings (IPO),t -test

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