A Note on the Intraday Patterns of Initial Public Offerings: Evidence from Hong Kong

24 Pages Posted: 11 Jul 2004

See all articles by Wai-yan Cheng

Wai-yan Cheng

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Ka-Kit Po

City University of Hong Kong

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Abstract

This paper examines the intraday patterns of IPOs in Hong Kong during the period 1995-1998. The results reveal that the well-known under-pricing phenomenon of IPOs occurs only at the opening trading of new issues and vanishes afterwards. The return volatility of IPOs is found to be high during the first trading session, and declines rapidly during the rest of the first trading day until the end of the trading day. The intraday return volatility of IPOs is found to follow a double U-shape pattern, which is similar to that of the general market. A great deal of trading activity was recorded during the first five minutes of the trading day. Consistent results are obtained for IPOs registered during the pre-crisis and post-crisis periods. This paper has practical implications for investors. Investors can benefit from the under-pricing only if they subscribe for new shares in the primary market. There is, however, no profit-making opportunity for day traders who buy shares on the first trading day. This shows that the Hong Kong market is efficient in adjusting for the IPO under-pricing. In addition, it is likely that, because of Hong Kong's share allotment method, only big investors who apply for large numbers of shares can benefit from this under-pricing phenomenon.

Suggested Citation

Cheng, Wai Yan and Po, Ka-Kit and Cheung, Stephen Yan-Leung, A Note on the Intraday Patterns of Initial Public Offerings: Evidence from Hong Kong. Available at SSRN: https://ssrn.com/abstract=563438

Wai Yan Cheng

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
(852)2194 2439 (Phone)
(852)2788 8842 (Fax)

HOME PAGE: http://roweb.cityu.edu.hk/researchreport/2002-2003/profile/1080F.htm

Ka-Kit Po

City University of Hong Kong

83 Tat Chee Avenue
Kowloon
Hong Kong

Stephen Yan-Leung Cheung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)

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