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IPOs, A Dish Best Served Hot or Cold?: A Study of the Market Condition Effect on IPOs
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.
2014 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

The purpose of this research is to study the effect of market conditions on the performance of IPOs which is relevant information for investors and companies alike, involved with IPOs. The long-term underperformance of IPOs has been previously discussed by Loughran & Ritter (1995) which has later been named as the “New Issuance Puzzle” of IPOs. This underperformance, however, has later been contradicted by research from Carter et al. (2011) who did not find long-term underperformance of IPOs. By studying the previous research of Helwege & Liang (2004), who examined IPO issuances under different hot and cold IPO periods, we found a research gap of what effect the market conditions have on the IPO issuance.


By analysing the performance under different time periods, we compare the results to an index benchmark with matching time periods of the IPO issuing companies under our full sample period. We can then analyse the performance of the IPOs compared to their respective benchmark. By adding an analysis of hot/cold and bull/bear market conditions under which the IPOs were conducted, we will observe the effect of IPO performance under different market conditions.


Our positivistic and ontological view guided our article and research process. We relied on a deductive approach in order to test our anticipated outcomes and hypotheses. Articles yielding substantive theories, based on the explanation of middle-range theories serve as the benchmark of our theoretical framework.


The research came to a conclusion where we did not observe underperformance of the IPOs in the long-term, which contradicts the “New Issuance Puzzle” of Loughran & Ritter (1995). We could observe underperformance (overperformance) of IPOs under hot (cold) period market conditions when we defined the hot and cold market periods in accordance with the number of IPO issuance during each year. In accordance to initial first month IPO returns, we observe overperformance (underperformance) of hot (cold) period IPOs. We also included bull and bear market conditions into our research, where we could find patterns that the number of issuance had the same distribution as the bull and bear market conditions currently consisting on the market. The index of OMXS30 had the same price movement as the number of issuance each year. Therefore the number of issuance each year could hypothetically be used as an indicator of the future market performance of the OMX Stockholm. We did not find statistical significance of abnormal returns on the IPO market under different market conditions

Place, publisher, year, edition, pages
2014. , 67 p.
Keyword [en]
IPO, market conditions, buy-and-hold, underperformance
National Category
Business Administration
URN: urn:nbn:se:umu:diva-97090OAI: diva2:770577
Available from: 2014-12-12 Created: 2014-12-10 Last updated: 2014-12-12Bibliographically approved

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