Understanding IPO Market in Australia: Analysis of Initial Returns and Long Run Performance

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question:....................................................................................................................................2
1. Understanding the calculation of initial returns, while analysing and interpreting the
Australian IPO market:..............................................................................................................2
2. Calculating and comparing the percentage return on the long run IPO performance:.........11
3. Understanding the reason for the occurrence of short run IPO under-pricing and contrasting
the results with empirical study:..............................................................................................12
Reference and Bibliography:....................................................................................................16

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Question:
1. Understanding the calculation of initial returns, while analysing and interpreting the
Australian IPO market:
Descriptive analysis of the initial public listing:
Initial return
Mean 0.094234
Standard Error 0.049411
Median 0.057778
Mode 0
Standard Deviation 0.261457
Sample Variance 0.06836
Kurtosis 6.076875
Skewness 1.44621
Range 1.548429
Minimum -0.55143
Maximum 0.997
Sum 2.638556
Count 28
The above table represent the descriptive analysis of the overall IPO listing, which is
been conducted between the 1 April 2015 to 31 July 2015. In addition, the analysis relevantly
evaluates the mean, median, mode and standard deviation of the overall initial public offering
conducted in the Australian capital market. The number of companies used in the evaluation

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is 28, which helps in understanding the overall valuation and risk involved in the investment
of IPO. In addition, the overall evaluation mainly indicated an average return of all the
companies provided from the IPO at the level of 9.42%. In addition, the median is relevantly
calculated at the levels of 5.78%, while the mode is calculated at 0. The median value mainly
indicates that 50% of the IPO companies are having returns higher than 53.78%, while the
overall 50% are not achieving the median returns. Moreover, standard deviation of the return
provided by the IPO on the initial day is calculated at the levels of 26.15%. This relevantly
indicates that risk and return of the IPO is higher in the initial day, which could hamper return
generation capability of the investors. Judge et al. (2015) mentioned that investors use the
initial valuation of the company to identify the relevant investment options, which could
increase their chance to generate higher return from investment.
1ST
ADH
AER
AFG
ALI
AXP
AYS
BMH
CGC
ECX
FFT
FRX
GDF
GNX
GTY
IQ3
KSL
MDC
MUA
MYO
NCL
PIQ
PPL
QMS
RFN
SHM
SLC
WDE
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
Initial return
The figure relevantly helps in depicting the overall initial return of the companies
conducting their IPO. Maximum of the companies on the day of their IPO has made losses,
while some of the companies made exponential gains. The inconsistency in the returns of the
IPO companies is due the valuation conducted by investors. Kotlar et al. (2017) stated that
investor use different valuation method to derive the accurate share price valuation of a