வணிகம் மற்றும் பொருளாதார இதழ்

Investor Interest, Under-Pricing and Trading Volume in Pakistan Secondary Market

Abstract

S Kayani,S Amjad

This paper investigates the relationship between pre- and post-initial public offering (IPO) investor interest and under-pricing. The IPO investor interest influences the offering price of IPOs and divergence of opinions influence the trading volume of new IPOs. The study is based on secondary data collected from Karachi Stock Exchange (KSE) website and prospectus of companies which were going to be public during the study. Data were collected for the 59 companies which have been listed on KSE during January 2000–July 2010. Regression analysis and test of significance were conducted to examine the level of under-pricing and investor interest relationship. The average under-pricing of the Pakistan’s IPOs is found to be 39%. Initial return is found to be positively related to the investor interest in Pre-IPO demand to offer ratio. The over-subscribed IPOs earn significant and high initial abnormal returns to investors. The under-priced IPOs have constantly high-trading volume than over-priced IPOs in the first 30 days of IPO listing. The additional control variables which influence the level of under-pricing in Pakistan include offer size, ex ante uncertainty, firm size and float, whereas float was found to be the single most important variable in determining the under-pricing.