UK IPOs: Long run returns, behavioural timing and pseudo timing

Gregory, Alan; Guermat, Cherif; Al-Shawawreh, Fawaz

Abstract

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. © 2010 Blackwell Publishing Ltd.

• Journal Article Type: Article
• Publication Date: Jun 1, 2010
• Journal: Journal of Business Finance and Accounting
• Print ISSN: 0306-686X
• Electronic ISSN: 1468-5957
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 37
• Issue: 5-6
• Pages: 612-647
• DOI: https://doi.org/10.1111/j.1468-5957.2010.02182.x
• Keywords: IPOs, long run underperformance, market timing
• Public URL: https://uwe-repository.worktribe.com/output/985216
• Publisher URL: http://dx.doi.org/10.1111/j.1468-5957.2010.02182.x