Listing Requirements, Uncertainty, and Underpricing of Ipos
Posted: 22 Oct 2000
Date Written: April 1993
A direct test of Rock's model using 99 IPOs issued on the Stock Exchange of Hong Kong (SEHK) reveals that Rock's model may not hold, in that small to medium investors do get significantly positive rationing-adjusted excess returns. The excess returns detected, however, are primarily accrued to IPOs issued after the implementation of the new listing rules which allow smaller and younger firms to be listed on the SEHK. The size effect does not seem to exist as both smaller and larger issues are significantly underpriced. While the underpricing phenomenon may be caused by the uncertainty introduced by the new listing rules, there seems to be a convergence towards the prediction made by Rock's model, in that the underpricing is getting weaker over time.
JEL Classification: F00
Suggested Citation: Suggested Citation