Underpricing and short-term returns - An empirical study on Initial public offerings in the Nordics

Abstract

The study examines the effect underpricing has on short-term returns for 291 Initial public offerings in Denmark, Finland, Norway and Sweden. To test for this, two different OLS-regressions have been developed with Buy-and-hold abnormal returns (BHAR) as the dependent variable, and Market-adjusted abnormal returns (MAAR) as the variable of interest, accompanied by a few control variables. The results of the study show a positive relationship between underpricing and short-term returns, meaning that a higher degree of underpricing has been beneficial for short-term returns. The result deviates from the findings in the majority of previous research, although most of it is based on a long-term perspective. Existing theories such as efficient market hypothesis, signaling and others have provided valuable insights to clarify the observed outcome. The study contributes to a furth