dc.description.abstract | This study was aimed at contributing to the growing question surrounding
the performance of IPOs on the Nairobi stock exchange. It aimed at testing
whether investors can make abnormal returns by buying IPOs at their issue
price and consequently selling them on the first day of trading. It also aimed
at evaluating if the IPOs are able to sustain their initial abnormal returns over
a longer time horizon.
The study examines 5 Kenyan IPOs issued between 1998 and 2008. It uses
both descriptive statistics and regression analysis to measure the performance
of these IPOs. The Market Adjudted Initial Return (MAIR) is used to calculate
the excess return on the first day of trading whereas the Cummulative
Average return is used to measure the IPOs performance over the 15 month
period.
An average market adjusted initial return (MAIR) of 70.06% was reported on
the first day of trading and a Cumulative Average Return (CAR) of 0.98% was
reported at the end of the 15 months. Therefore, it reports a significant drop in
returns, a phenomena commonly referred to as longrun under-performance.
The regression results of the data analysis support the ex ante uncertainty
hypothesis, the signaling hypothesis and, to some extent, the market
cyclicality hypothesis as possible!e explanations for the underpricing
phenomenon on the Kenyan IPO market. | en |