IPO underpricing and long-term stock performance- Evidence from Sweden

Abstract

This thesis explores the long-term effects of IPO underpricing on stock performance in the Swedish market. From a sample of companies which are listed on Nasdaq Stockholm between the years of 2009 and 2019, the study investigates whether the level of underpricing measured by initial returns, can predict future stock performance. Employing Buy-and-Hold Abnormal Returns (BHAR) over a longer time period, 6-month, 3-year and 5-year, the findings reveal significant initial mispricing. Underpricing occurs more frequently than overpricing. Regression analyses indicate a negative relationship between positive initial returns and longterm stock performance, over the 3-and 5-year periods. These results support behavioural finance theories, suggesting that early gains are often corrected over time. The study concludes that high first-day returns, underpricing, reflects overvaluation rather than enduring value.