Pricing of initial public offerings

Abstract

The purpose of this study is to examine how investors in new stock issues have fared relative to the rest of the stock market both in short and in medium term in Istanbul Stock Exchange during the period January 1990-April 1991. Furthermore, the speed of market adjustment to mispricing is also examined. In light of the findings, initial public offerings are found to be underpriced and investors in initial public offerings could enjoy short term returns relative the rest of the stock market. The market adjustment to mispricing is observed to be accomplished during the first two days of public trading with the bulk of the adjustment being in the first day.