Initial excess returns and long-term price performance of initial public offerings: Evidence from the Finnish markets

Abstract

This thesis explores initial excess return and three-year aftermarket performance of initial public offerings in Finland. The initial return, defined as the difference between the issue price and the first trading day closing price, is explored separate from and including the allocation of the issues. The evidence is gathered from 72 initial public offerings issued between 1993 and 2016. The results show that there exists a significant abnormal initial return of 15.12% on sample IPOs, which decreases to a negative 0.12% when shares are allocated according to the oversubscription of the issues. The evidence also shows that the IPOs significantly underperform the benchmark market index over the three years following the first trading date. Additionally, the speculative bubble hypothesis is studied based on the results that indicate positive correlation between unallocated first day returns and degree of oversubscription of IPOs.