The aftermarket performance of initial public offerings: New evidence from an emerging market.

Abstract

This paper presents new updated evidence on the initial public offering (IPO) aftermarket performance for 144 public listed firms on the Colombo Stock Exchange from 1991 to 2017. We found that average aftermarket returns are always lower than 1%. On average, buy and hold abnormal returns are negative in a short period, and abnormal returns gradually become positive over a longer period (12.46% in 3 years). Further, aftermarket returns are positively related to investor sentiment and the annual volume of listings while being negatively related to initial returns, which is consistent with the divergence of opinion hypothesis. We suggest that investors should hold their subscriptions of IPO shares for a prolonged time, usually exceeding two years, as the dynamic of shares rewards the investors with positive abnormal returns in the long run.