Aftermarket price performance of initial public offerings on the JSA: 1980-1998
Date
2011-10-14
Authors
M’kombe, Chamu Mark
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Abstract
It is generally accepted that investors who invest in initial public offering shares on the Johannesburg Stock Exchange (JSE) expect to get returns that are in line with the risk to which they expose their investments. It would be beneficial for these investors, particularly those who invest for long periods of time, to know what returns their investments are likely to yield. It would equally be advantageous to managers of companies that intend to list on the JSE and to their advisors, to understand the critical factors that influence the performance of initial public offerings in the medium and long-term periods.
This research intended to answer three main questions regarding the performance of initial public offerings after listing. These questions were:- i) Do shares that list on the JSE yield risk-adjusted abnormal returns? ii) Are the returns received after investing in initial public offerings on the JSE dependent on the holding period of the investment? iii) Do certain characteristics of the initial public offering process influence the returns after listing? The period of study was 1980 to 1998.
Three risk-adjusted benchmarks were used to determine whether the shares that listed on the JSE yielded risk adjusted positive returns. These benchmarks were the CAPM model, the book-to-market reference portfolios and the market capitalisation reference portfolios. All three benchmarks indicated that on average, the returns yielded by the initial public offering shares were less than the risk adjusted expected returns. Furthermore, it was shown that the difference between the expected returns and the actual returns increased with the holding period of the investment. The differences were statistically significant. The research also found that certain characteristics of the initial public offering process (e.g. the listing price and the capital raised) could have influenced the returns
Description
MBA thesis - WBS
Keywords
Initial public offerings, Johannesburg Securities Exchange