The Behavior of IPO Underpricing in Bangladesh
Journal of Finance and Banking, Vol. 5, No. 1 & 2, June-December 1999
23 Pages Posted: 16 Jan 2008 Last revised: 16 Jul 2014
IPO underpricing is one of the most widely documented anomalies in the literature of financial economics. While most of the studies on IPO underpricing have been conducted on developed markets, quite a few studies have indicated that IPO underpricing had been even pervasive in the emerging markets. This study attempts to analyze the behavior of IPO underpricing in Bangladesh. Eighty four IPOs in Bangladesh during the period between 1994 and 1998 produced an average initial return of 116 percent. This is quite high compared to the underpricing in other markets. The IPO underpricing had been particularly high during the hot issue market of 1996. Statistical analyses indicate that the existence of abnormal return in the secondary market, the relative size of the issue and the estimated deliberate underpricing can significantly explain the underpricing of IPOs in Bangladesh.
Keywords: IPO, underpricing, equity issue
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