Emerging Stock Markets and Performance of IPOs: An Application to the Regional Stock Exchange (RSES)

The aim is to determine the short-term profitability of IPOs and to surrounding the evolution of this profitability on the middle/long run. Therefore, we used the raw initial returns and the adjusted initial returns methods to assess the short-term performance. We determined the long-term performance through the cumulative abnormal returns and the buy-and-hold abnormal returns, abnormal returns being adjusted to the market index and to the market model. By applying those methods to the eleven (11) IPOs’ made on the RSES from September 16th 1998 to December 31st 2011, we drawn two main conclusions. First of all, our results reveal that RSES’s IPOs present a great initial underpricing during this period and that, the adjustment of initial returns to market index negatively affected them. Then, the holding of these stocks on the middle/long run lead to their underperformance compared to the market portfolio. However, the long-term performance with buy-and-hold abnormal returns (BHARs) is less deteriorated than the one with cumulative abnormal returns (CARs). Those results imply that, buying IPOs at the offer price is profitable to investors in the short run and the holding of those stocks in the middle and long run must be done through the buy-and-hold investment strategy.