How to profit from pharmaceutical IPO first day returns.

• Main Authors: Chew, Benjamin Wei Chiang., Chua, Hui Ting., Soon, John Hao Han.
• Other Authors: Leon Chuen Hwa
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/51484
• Institution: Nanyang Technological University

This paper aims to create a model, with which retail investors can use historical financial information to find out if the IPO price is over or undervalued. The application of the model would benefit retail investors from IPOs that generate positive first day returns, and avoid investing in firms with negative first day returns. We examined a total of 31 samples of pharmaceutical IPO firms and evaluated their first day returns based on accounting data. We observed that before the adjustment for cash and leverage, our model produced results with an accuracy of 74.2%. This is in contrary to some research that believed cash and leverage adjustments would lead to better IPO pricings. Our model proves to be especially useful in reducing the chances of bad investments in overpriced IPOs, with 87.5% of the firms with negative first day returns accurately predicted.