Underpricing of Initial Public Offerings: The Case of Portugal |
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Authors: | Maria Rosa Borges |
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Institution: | 1.Technical University of Lisbon, Instituto Superior de Economia e Gest?o,Lisbon,Portugal |
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Abstract: | This paper analyzes the initial public offering (IPO) underpricing phenomenon in Portugal. We show that the ‘hot issue’ market
of 1987, coinciding with a speculative bubble in the stock market, is well explained by investor sentiment theories and that
the issuing firms seized a ‘window of opportunity’ provided by excessive demand to offer and list their shares. In IPOs prior
to the 1987 crash, underpricing is very high while there is a strong reversion to fundamentals in the long run. In the period
1988–2004, we find lower IPO underpricing and overall no evidence of long-run underperformance of IPO firms. Bookbuilding
IPOs are more underpriced than other price setting systems IPOs, and firms with seasoned public offerings show abnormal returns
in the long run.
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Keywords: | hot-issue markets IPO investor sentiment underpricing |
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