Underpricing of IPOs (Initial Public Offering) in Borsa Istanbul: The effect of Covid-19 Pandemic Period
Authors: Ataker Alper , Tas Oktay 
Published: February 2024

Purpose- This research has both theoretical and practical implications. The study's findings will provide valuable insights into the impact of the COVID-19 pandemic on IPO mispricing in the Turkish IPO market. The study delves into the behavior of IPOs that were issued between 2010 and 2022, with a focus on how they were affected by the COVID-19 pandemic. The results may help investors and issuers understand the pandemic's effects on IPO pricing and inform their investment decisions. The study will also provide valuable insights to investors, regulators, and market participants, allowing them to make more informed decisions during market volatility and uncertainty periods.
Methodology- The study involves employing two methods: the traditional ordinary least squares (OLS) and the more appropriate quantile regression (QR). The OLS method focuses on assessing the average impact of independent variables on mispricing, disregarding the unexplored latent characteristics of the mispricing distribution, especially when it deviates from a normal distribution. In contrast, the QR method allows us to investigate the diverse effects of independent variables at different levels of mispricing due to the asymmetric distribution of returns. By employing the QR approach, it can be identified the specific impacts of each variable on IPOs within particular levels of mispricing. This robust method is capable of handling potential heterogeneity in the distribution, which was observed in the sample. The QR method also facilitates the examination of various segments of the mispricing distribution, including the tail regions, enabling a comparison of the effects of explanatory factors on IPOs that range from extremely overpriced to extremely underpriced. Due to the constraints of the project, the paper has been done with a limited number of shares.
Findings- The study investigates the impact of the COVID-19 pandemic on Initial Public Offering (IPO) mispricing in financial markets, examining changes in mispricing levels before, during, and after the pandemic. The results indicate a significant increase in IPO mispricing during the COVID-19 period, consistent with expectations due to factors such as heightened asymmetric information, reduced IPO volume, and decreased demand.
The analysis tests the hypothesis that Covid-19 has a significant impact on IPO results. The results show that the null hypothesis (H0) cannot be rejected, supporting the notion that the pandemic has a substantial effect on IPO mispricing. This is particularly evident in equations examining 1-year returns. Furthermore, the study explores the influence of various factors on IPO mispricing, including stock market indices and dummy variables representing different years. While some index values are found to be insignificant, the Borsa Istanbul-All Index and dummy variables for 2020, 2021, and 2022 are significant in specific equations. Notably, the persistence of the impact of COVID-19 beyond the relevant period suggests a lasting effect on IPO mispricing.
Examining sector-specific effects, the study finds that, based on first-day returns, all sector values, except for SEC 3 (Consumer Non-Cyclicals), are significant. However, for 1-year returns, only SEC 5 (Financials) and SEC 4 (Energy) exhibit significance, with the latter being slightly above the 10% limit. The increasing demand for energy companies in recent times is identified as a potential driver for higher levels of "IPO underpricing" in specific IPOs within these sectors.
Conclusion- The study provides robust evidence of increased IPO mispricing during the COVID-19 pandemic, highlighting the persistent impact of the crisis on financial markets, as well as sector-specific nuances influencing mispricing levels.

Keywords: IPOs (Initial Public Offerings), mispricing, pandemic, initial returns, long-term returns
JEL Codes: C21, C23, D81, E44, G14