Chapter 20: Development in financial markets and the performance of German IPOs
Initial public offerings (IPOs) are part of various controversy discussions in finance, which document mainly three aspects regarding IPO performance. First, the global phenomenon that IPOs tend to be priced at a discount (underpricing). Second, listings of IPOs vary significantly dependent upon certain periods (hot issue markets). Third, it is well documented that IPOs appear to have poor long-term performance. These conclusions were developed in a large body of empirical studies, which have been carried out subsequently in the past. Initially, Ibbotson and Jaffe (1975) presented empirical evidence on underpricing and connected it with the existence of hot and cold issue markets influencing the magnitude of the underpricing. Further, similar pattern were documented by Ritter (1984) analysing the 1980 US-hot issue market and Loughran et al. (1994) at international level, showing that this has not been a single event.
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