Issue discount and investor overoptimism in IPO initial return

Abstract

The objective of this thesis is to investigate whether the initial return of IPO reflects the issue discount by issuer or the overoptimism of investor. Sample used in this study is the listed firms in London Stock Exchange (LSE) during 1991-2005. Regarding the post-issue operating performance measurement, we apply the industry adjusted performance and the multivariate regression. For the long-run stock price performance measurement, we apply the event-time approach, the calendar-time approach and the multivariate regression. The data is divided by the initial return level into five levels in order to study the highest and the lowest group of initial return. The evidences do not support our hypotheses, and the initial return does not have the relation with the post-issue operating performance and the long-run stock price performance. So the initial return is not the signal of the issuer’s quality and the stock price performance. Then these evidences are not consistent with the previous studies in the U.S stock market.