A Note on the Intraday Patterns of Initial Public Offerings: Evidence from Hong Kong

Abstract

This paper examines the intraday patterns of IPOs in Hong Kong during the period 1995-1998. The results reveal that the well-known under-pricing phenomenon of IPOs occurs only at the opening trading of new issues and vanishes afterwards. The return volatility of IPOs is found to be high during the first trading session, and declines rapidly during the rest of the first trading day until the end of the trading day. The intraday return volatility of IPOs is found to follow a double U-shape pattern, which is similar to that of the general market. A great deal of trading activity was recorded during the first five minutes of the trading day. Consistent results are obtained for IPOs registered during the pre-crisis and post-crisis periods. This paper has practical implications for investors. Investors can benefit from the under-pricing only if they subscribe for new shares in the primary market. There is, however, no profit-making opportunity for day traders who buy shares on the first trading day. This shows that the Hong Kong market is efficient in adjusting for the IPO under-pricing. In addition, it is likely that, because of Hong Kong's share allotment method, only big investors who apply for large numbers of shares can benefit from this under-pricing phenomenon. Copyright Blackwell Publishers Ltd, 2004.

Evidence on the effect of ‘Claw-Back’ provisions on IPO share allocation and underpricing in Hong Kong

“…When compared with other Asian countries, initial returns observed in Hong Kong IPOs during recent periods are modest. Moreover, when results reported by Dawson and Hiraki (1985), Dawson (1987), McGuinness (1992, Chen et al (2001), Cheng et al (2004), Cheng et al (2006), Vong (2006), Vong and Zhao (2008) and others, are compared with those obtained in the present paper, it is concluded that underpricing in Hong Kong has experienced a significant decrease from the year of 2001 on.…”

Pricing and performance of IPOs: Evidence from Indian stock market

“…Bora et al (2012) reported that Indian IPOs are underpriced when measured using offer price and the opening price on listing day (which is again consistent with our measure using the same prices). Also, Cheung and Krinsky (1994) and Cheng et al (2004) documented underpricing using similar measure. Both of these studies found that underpricing is significant when computed using offer-to-open measure.…”

“…IPOs from developed countries are more underpriced and privatisation of IPOs are less underpriced than nonprivatisations. Examining the intraday patterns of IPOs in Hong Kong, Cheng, Cheung, and Po (2004) found that underpricing of IPOs occurs only at the pre-listing market and disappears afterwards i.e. Hong Kong market is efficient in adjusting for IPO underpricing.…”

Model specification and IPO performance: New insights from Asia

“…Previous IPO studies on Hong Kong such asMcGuinness (1992) find that there exists 17.6 percent initial underpricing of the IPO firms. WhenCheng, Cheung and Po (2004) split their sample into pre-and post-1997 Asian Financial…”