Price performance of initial public offerings in Istanbul Stock Exchange

Abstract

Tliis study aims at investigating the price behavior of initial public offerings (IPOs) in Istanbul Stock Exchange (ISE) during 1994 and 1995 in the short- and medium-term. The study is also devoted to the structure, pricing methods, timing, advantages and disadvantages of IPOs and the existing regulatory environment. The existence of significant abnormal positive returns of new issues on the first and fifth trading days is the proof of underpricing. However, no significant excess returns are observed for the second and third week following the initial trading. The absence of significant abnormal initial returns in the IPO market in ISE during the same period suggests that new issues follow the general market movement. On the first and third month after the initial trading, the IPOs are overpriced since there exist significant abnormal negative initial returns. The observed high variability on average returns indicates that there might be some stocks that are underpriced while there might be some stocks that are overpriced. Investors purchasing new issues at the initial offering earn positive abnormal returns in the early aftermarket period. IPOs are profitable investments in the short-term (until the fifth trading day), but perform quite poorly over longer periods (after the first month following the initial trading date).