The Six-Month Performance of Initial Public Offerings in the Norwegian Stock Market : An Empirical Study on Investors’ Ability to Generate Excess Returns by Investing in Initial Public Offerings

Abstract

This thesis studies the six-month performance of 357 Norwegian initial public offerings (IPOs) from 1997 to 2021. To examine if IPOs underperform the market, we compute cumulative adjusted returns for equally-weighted portfolios, cumulative average adjusted returns, and buy-and-hold returns. We conclude that IPOs in the Norwegian market have an average initial return of 8.53% and that aftermarket underperformance is not only a long-run phenomenon but also occurs in the shorter time frame of six months. We find evidence that the IPOs underperform relevant market indices when measuring aftermarket performance from the first closing price to six months later. However, the returns are considerably higher when measuring from the offering price, indicating that cornerstone investors on average are better off investing in IPOs than retail investors. We document substantial variation in the IPO performance across sectors and year-to-year, with high-volume periods performing the best. Finally, our findings indicate that these patterns are caused by firms taking advantage of fads and investor overoptimism. Keywords – IPO Performance, Investment decisions, Six-month returns