Aftermarket performance of Norwegian initial public offerings

Abstract

The objective of this thesis is to examine whether the aftermarket performance of Norwegian initial public offerings (IPOs) is consistent with market efficiency. Previous studies state that market efficiency can be disrupted by market anomalies. This study focuses on short-term underpricing and long-term underperformance of IPOs. The initial returns are measured by benchmarking IPOs against market indexes. Our results reveal that initial average abnormal returns fluctuate from 0.5% to 1.5%. The long-term underperformance anomaly is also present in the Norwegian stock market. Based on different benchmarks, we have found an average of three-year abnormal returns varying from -10% to -30%. We have found little empirical evidence as to why IPOs underperform in the long run, but our results indicate that aftermarket returns varies among sectors. Despite finding evidence of underpricing and long-term underperformance, it is unlikely whether investors can exploit these anomalies. This study concludes that these anomalies are difficult to exploit, which means that we have found few, if any, departures from market efficiency in the market for Norwegian IPOs.