Stock Performance of KOSDAQ IPOs right after Listing
Authors:   Asia-Europe Perspective Association, Kim Noolee 
Published: June 2018

Initial public offering (IPO) is considered as a highly decent investment opportunity by stock market investors due to its significant initial returns at the day of listing. However, the literature reports long-run underperformance of IPOs which contradict the substantial level of initial returns. From investors’ point of view, the price behaviors of IPOs after the listing day determine their investment returns and therefore are their first interests. Even though the stock performance of IPOs have been examined extensively, the focus of previous studies has been on the issue of initial returns at the day of listing and long-run performance during three of five year after listing, which leaves the stock performance of IPOs right after listing unexamined.
This study examine the stock performance of KOSDAQ IPOs right after listing. Specifically, we examine the stock price behaviors of KOSDAQ IPOs during 20 trading day after the day of listing (i.e. around one calendar month) and draw several implications for stock market investors from the empirical results. For our empirical analyses, we employ the sample of 600 initial public offerings in KOSDAQ market for the period from April 2000 to November 2011.
We find the followings. First, while the initial returns of IPOs at the day of listing are huge and significant (average 47.2%), their returns over the offer prices exhibit consistently decreasing trend during one month after listing. After one month, around 40% of the sample IPOs show negative returns over the offer prices. For the whole sample, the mean return over the offer price after one month is 36.4%, however, for the sub-sample of IPOs with market price under the offer price, the mean return is -20%.
Second, the return distribution of the IPOs which achieve the possibile maximum initial returns at the day of listing, diffuses as time goes on not only to upward but also to downward. However, one month after listing, the return over the offer price averages 99.7%, which is significantly higher than that of the whole sample and the most of the IPOs have market prices above their offer prices.
Third, When we assume a case where investors invest their money into the IPOs with maximum initial returns at the closing price of the day of listing, the distribution of the return over the closing price of the listing day exhibit more diffusion to downward than to upward as time passes. In this scenario, the mean return during one month period after listing is -5% and 67.3% of the IPOs with maximum initial returns have negative returns over the closing price of the listing day. For the IPOs with market price under the offer price in spite of their maximum initial returns, the mean return during one month is -28% Fourth, most of the changes in the distribution shape of returns over the offer prices during one month period after the listing is concentrated in the one week period right after the listing.
These empirical findings provide the following practical implications for stock market investors. First, Even though IPOs are decent investment opportunities on average, investments into IPOs do not guarantee high (even positive) investment returns. In some cases, investors can realize significant loss during a relatively short period of time. Second, even IPOs with maximum initial returns have substantial possibility of price decreases, which makes sufficient cautions in investment decisions necessary.