Underpricing of Initial Public Offerings: The Case of Portugal
JOURNAL
YEAR
Sep 21, 2007
TYPE
Articles in journals
AUTHORS
Borges, R.
VOL Nº
13
PAGES
15
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 and firms with seasoned public offerings show abnormal returns in the long run.
JEL CLASS
KEYWORDS
Hot-issue markets,IPO,Investor sentiment,Underpricing