Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

Sumit Agarwal (), Chunlin Liu and S. Ghon Rhee

Journal of International Financial Markets, Institutions and Money, 2008, vol. 18, issue 2, pages 176-190

Abstract: In this study, we examine the relation between pre-offering demand and aftermarket performance of IPO firms in the Hong Kong stock market. We find that IPOs with high investor demand realize large positive initial returns but negative long-run excess returns, while IPOs with low investor demand realize negative initial returns but positive long-run excess returns. This result suggests that (1) pre-offering demand for IPOs is at least partly driven by investors' over- or underreactions to information about firms' post-issuance prospects, and (2) while high- and low-demand IPOs are not priced at their intrinsic values in early aftermarket trading, eventually their true values are reflected in their pricing.

Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:eee:intfin:v:18:y:2008:i:2:p:176-190

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