Short-Term Price Behavior of Finnish IPOs during 1994-2000

The purpose of the thesis is to study the short-term price behavior of Finnish initial public offerings (IPOs) during 1994-2000. Emphasis is on the persistence of IPO mispricing and partial adjustment of prices in both the primary and secondary markets. In the theoretical chapters capital market efficiency, central IPO anomalies and general characteristics of IPOs are introduced. The sample used in the empirical examination consists of 59 IPOs conducted at HEX during the research period. Statistical methods include Student's t-test, non-parametric Mann-Whitney test and regression analysis. Evidence consistent with partial adjustment is found. Price update from the midpoint of preliminary pricing range can predict initial returns, and thus all information available in the pre-IPO market is not incorporated into offer price. The intraday behavior of prices reveals that whole initial return is not realized in the opening of trading: also the intraday return is statistically significant. Somewhat weak evidence is found concerning conditional price trends in the secondary market. After-market performance is predictable based on initial returns. In particular, overpriced IPOs underperform the market index in the after-market.