The market performance of initial public offerings in the Philippines: An application of the capital asset pricing model and a test of market efficiency

• Main Author: Velasco, Aida Licaros
• Format: text
• Language: English
• Published: Animo Repository 1995
• Subjects: Capital assets pricing model; Capital market; Investments > Mathematical models; Philippines > Commerce; Pricing; Corporate Finance
• Online Access: https://animorepository.dlsu.edu.ph/etd_doctoral/763
• Institution: De La Salle University

This paper studies the market performance of unseasoned issues offered to the public more commonly known as initial public offering or IPO for the period 1987-1993.Results of the study showed that Philippine IPOs registered a positive initial abnormal return of 29.31 percent and an average monthly return of 7.26 percent if the issue is held for a year. This proves IPO underpricing at 5 percent level of significance. The results support the theory of Rock on IPO underpricing. The performance of these new issues also suggests that investors who subscribed to these securities at offering price will realize the highest return if they sell on the first day of listing. There is no conclusive evidence to suggest that actively trading the new issues on a short-term buy strategy will give a better return than a long-term position.The market performance of these new issues suggests that prices are independent from period to period. This supports weak-form market efficiency. Returns on these new issues do not have a significant relationship to the factors that determine common stock returns suggested by Fama and French. The offering type is the only variable that can significantly explain the initial return of these unseasoned issues.