Descriptive Analysis (Initial return):
|
IPO Return |
|
|
Mean |
9.423% |
|
Standard Error |
4.941% |
|
Median |
5.778% |
|
Mode |
0.000% |
|
Standard Deviation |
26.146% |
|
Sample Variance |
6.836% |
|
Kurtosis |
607.687% |
|
Skewness |
144.621% |
|
Range |
154.843% |
|
Minimum |
-55.143% |
|
Maximum |
99.700% |
|
Sum |
263.856% |
|
Count |
28 |
Descriptive analysis depicted in the above table relatively represents the data of 28 companies, which was listed in April 2015 to July 2015. This evaluation is relatively conducted to identify the impact of underpricing in IPOs, which allows investors to obtain abnormal gain during the first day of trading. The above table relatively depicts mean, median, and standard deviation of the returns generated on the day of IPO initiation. Moreover, from the calculation it is detected that the Companies listed in Australian Stock Exchange provided 9.423% average returns. During this period, the median generated from the returns fees at the levels of 5.778%, which indicates that 50% of the IPO returns during the first day was more than 5.778%. Furthermore, from the descriptive analysis the risk involved in IPO reading is also detected, where the standard deviation is at the levels of 26.146%. This is relatively indicates that the return generation capacity of IPO is higher but the risk attributes of the investment is also high. This relevant evaluation indicates that investments in IPOs could eventually allow investors to generate higher rate of return from investment for a short duration. In addition, the volatility identified in IPOs indicates the presence of underpricing in the Australian market, which would benefit investors to generate higher rate of return from Investments. Kotlar et al. (2017) mentioned that investors during the IPO initiation are able to acquire stocks with low share valuation, which could eventually help them increase the returns from investment.
The returns provided by the 28 IPOs in the first day of trading are depicted in the above figure, where the returns that could allow investors to generate higher income from investment are effectively identified. However, the evaluation relatively indicates that the first day trading would only benefit some investors as maximum of the IPS got losses or low returns on the first day of trading. This relatively indicates inconsistency of the returns that is provided by IPO companies, while it increases risk from investments for the investors (Boulton, Smart and Zutter 2017).
With the relevant assumptions in the assessment, the overall analysis is being conducted for different sectors that are listed in ASX stock market. The descriptive analysis of only those sector is being conducted who has more than one stocks listed in the IPO section. The sector with no more than one stock is ignored as the output from the analysis would be weak and portray wrong results to the investors. Consumer staples, Industrials, and Utilities sector is not evaluated in the descriptive analysis, as results will not portray accurate output and will be vague due to low data (Khurana, Ni and Shi 2017). Descriptive analysis on different GICS sector is depicted as follows.
Descriptive analysis (Consumer Discretionary):
|
Consumer Discretionary |
|
|
Mean |
9.931% |
|
Standard Error |
1.888% |
|
Median |
9.208% |
|
Mode |
#N/A |
|
Standard Deviation |
3.777% |
|
Sample Variance |
0.143% |
|
Kurtosis |
37.116% |
|
Skewness |
93.546% |
|
Range |
8.692% |
|
Minimum |
6.308% |
|
Maximum |
15.000% |
|
Sum |
39.724% |
|
Count |
4 |
From the calculation, the average returns provided by the consumer discretionary sector is at the levels of 9.931%, with overall standard deviation of 3.777 %. This relatively indicates that the returns provided by the sector are higher than the risk involved in Investments. Therefore investors could eventually utilise this opportunity to generate higher rate of return from the IPO initiation, which is conducted by consumer discretionary sector. Furthermore, the median of 9.208% relatively indicates that 50% of the companies listed for the IPOs issued during April 2015 to July 2015 generated returns higher than median value. This relatively indicates that investors could use the opportunity to investment during the IPO initiation to generate higher rate of return while reducing the risk from investment (Beck 2017).
Descriptive Analysis (Financials):
|
Financials |
|
|
Mean |
17.018% |
|
Standard Error |
11.842% |
|
Median |
9.935% |
|
Mode |
#N/A |
|
Standard Deviation |
29.008% |
|
Sample Variance |
8.415% |
|
Kurtosis |
78.157% |
|
Skewness |
105.673% |
|
Range |
79.348% |
|
Minimum |
-12.681% |
|
Maximum |
66.667% |
|
Sum |
102.105% |
|
Count |
6 |
The descriptive analysis conducted on financial sector relatively indicated a total mean of 17.018%, which indicates that the average returns provided by the IPO conducted in the sector. Moreover, the standard deviation of the stocks listed during April 2015 to July 2015 is at the levels of 29.008 %, which is comparatively two other investment sectors. Furthermore, the median value generated from the RTO initiation is at the levels of 9.935%, which indicates that 50% of the IPO stocks listed in ASX stock have provided higher returns from the median. This descriptive analysis directly evaluates stocks of the IPO companies, which are related to financial sector and could provide investors with high rate of return (Nielsson and Wójcik 2016).
Descriptive Analysis (Healthcare):
|
Health Care |
|
|
Mean |
-12.536% |
|
Standard Error |
14.321% |
|
Median |
-0.500% |
|
Mode |
#N/A |
|
Standard Deviation |
28.642% |
|
Sample Variance |
8.204% |
|
Kurtosis |
366.862% |
|
Skewness |
-190.205% |
|
Range |
61.143% |
|
Minimum |
-55.143% |
|
Maximum |
6.000% |
|
Sum |
-50.143% |
|
Count |
4 |
The Healthcare sector relatively value a stock, which eventually helps in identifying the return and risk involved in the IPO initiation. The descriptive analysis relatively indicates that average returns provided from healthcare sector during the first day of trading is at the levels of -12.536%, which relatively and negative returns provided by the companies. Moreover, the Standard deviation is at the levels of 28.64 to percentage with a median of -0.500% this relatively indicates that 50% of the stocks listed in the IPO have generated returns less than -0.500% during the first day of trading. Therefore, from the valuation of the descriptive analysis it could be identified that Healthcare sector does not provide adequate returns to the investor on the day of initial public offering. On the other hand, investors should ignore the investments conducted on eyebrows of Healthcare sector to minimise the losses from Investments. Francis (2017) argued that due to the involvement of external factors the risk attributes in investments really increases while reducing the profits that could be generated from investment.
Descriptive Analysis (Information Technology):
|
Information Technology |
|
|
Mean |
8.969% |
|
Standard Error |
5.519% |
|
Median |
6.621% |
|
Mode |
#N/A |
|
Standard Deviation |
13.520% |
|
Sample Variance |
1.828% |
|
Kurtosis |
-9.907% |
|
Skewness |
55.286% |
|
Range |
38.000% |
|
Minimum |
-8.000% |
|
Maximum |
30.000% |
|
Sum |
53.813% |
|
Count |
6 |
Descriptive analysis of Information Technology Sector relatively in uses 6 different IPS conducted during April 2015 to July 2015. The relative period used for the analysis as provided a standard deviation of 13.520% with average returns of 8.969%. This relatively indicates that Return and risk attribute of Information Technology Sector companies is adequate, which would allow investors to generate higher rate of returns. Moreover, the median value is at the levels of 6.621%, which indicates that 50% of the stocks have provided higher returns from the median value. This relatively indicates a positive investment opportunity for investors, as the risk attribute is relatively low while the returns high. In this context, Daniel (2017) stated that with the help of risk and return attribute investors are able to formulate their portfolio which has low risk and high return investment.
Descriptive Analysis (Real Estate):
|
Real Estate |
|
|
Mean |
2.800% |
|
Standard Error |
0.300% |
|
Median |
2.800% |
|
Mode |
#N/A |
|
Standard Deviation |
0.424% |
|
Sample Variance |
0.002% |
|
Kurtosis |
#DIV/0! |
|
Skewness |
#DIV/0! |
|
Range |
0.600% |
|
Minimum |
2.500% |
|
Maximum |
3.100% |
|
Sum |
5.600% |
|
Count |
2 |
The descriptive statistics of real estate sector indicates the change in return generation capacity of the companies during the IPO initiation. There are only two companies evaluated for the assessment, real estate sector companies were not listed during April 2015 to July 2015. From the relevant evaluation it could be identified that average returns provided by the stock is at the level of 2.800 % it is at the levels of 0.424%. Moreover, the median value is at is at the levels of 2.800%, as only 2 stock is been used in the descriptive analysis (Wong and Ting 2017).
Descriptive Analysis (Telecommunications Services):
|
Telecommunication Services |
|
|
Mean |
35.085% |
|
Standard Error |
32.347% |
|
Median |
5.556% |
|
Mode |
#N/A |
|
Standard Deviation |
56.027% |
|
Sample Variance |
31.390% |
|
Kurtosis |
#DIV/0! |
|
Skewness |
171.291% |
|
Range |
99.700% |
|
Minimum |
0.000% |
|
Maximum |
99.700% |
|
Sum |
105.256% |
|
Count |
3 |
With the use of Telecommunication, descriptive analysis the overall average returns of 35.085% from the sector could be identified. The evaluation also indicated that the median value is at the levels of 5.556%, which indicates that 50% of the stocks have provided higher returns than the median value. On the other hand, the standard deviation is also at the levels of 56.027%, which relatively indicates the high risk involved in investment. Evaluation of the telecommunication service sector directly indicates that investments provide both high risk and returns to the investors. Therefore, investors need to evaluate the investments before completing the buying process during the IPO initiation (Qiming, Hui and Li 2017).
|
ASX Code |
Company Name |
Close price |
Price (2 years) |
HPR |
|
AFG |
Australian Finance Group Ltd |
1.38 |
1.34 |
-2.899% |
|
ALI |
Argo Global Listed Infrastructure Limited |
2.00 |
2.00 |
0.000% |
|
ECX |
Eclipx Group Limited |
2.30 |
3.78 |
64.348% |
|
IQ3 |
IQ3CORP Limited |
0.30 |
0.29 |
-3.333% |
|
KSL |
Kina Securities Limited |
1.00 |
0.77 |
-23.000% |
|
WDE |
Wealth Defender Equities Limited |
1.00 |
0.79 |
-21.500% |
|
^AORD |
All Ordinary Index |
5,869.700 |
5,773.900 |
-1.63% |
The above table and graph relatively represents the returns of financial sector companies from 2015 to 2017. The holding period return is a relatively calculated for the above message sector identifying the viability of IPO and the return that it could provide to investors. From the valuation it is indicated that maximum of the financial sector stocks has lost ground in 2 years as compared to the initial close price of first day trade. This relatively indicates that investments in IPO are a risky endeavour for the investors, which could directly hamper the investment capital and increased risk from investment. Devaluation there is only one stock, which could be identified to have exponential returns in 2 years, while the all-ordinary index of Australia declined during the two-year period (Wojcik and Nielsson 2016).
Moreover, the above calculations and explanation directly states that investments in IPO during the initial stage are not a good investment scope for investors in Australia. The IPO companies relatively provided the investors to identify the actual returns that could be generated by the companies conducted lower returns as no adequate valuations. Furthermore, the first day volatility and the two-year loss would directly increase risk of investors from investment and therefore should ignore IPO investment to minimise the negative impact on investment capital.
Asymmetric information theory and behaviour theory can be identified, as the overall measure, which could increase the presence of IPO on the pricing in US and Australia. Asymmetric information system relatively indicates that adequate information is not provided to all the parties, which benefits some of the investors while increases the loss for others. The behaviour theory also supports the overall presence of IPO underpricing, as investors are keen on detecting the return behaviour of companies in determining the overall share price of an IPO (Shimizu and Takei 2018). The combination of both the theories relatively indicates that investors utilise the information on the organisation to derive the overall IPO price and adequately make changes to increase their returns. IPO underpricing is relatively common in stock market, as it allows the issuer to complete the initiation process while increases the return generation capacity of the investors
Adequate empirical research is evaluated in the assessment to derive the presence of IPO underpricing, which is been conducted in developed and underdeveloped stock market. The empirical research conducted on the stock market of Japan relatively helps shed light on the presence of IPO underpricing. The researcher directly evaluates the IPO stocks by measuring the AAR/CAAR, which helps in measuring the short run performance of IPO. The abnormal returns provided by IPO stocks are mainly evaluated to detect the presence of underpricing, which was conducted during the initial stage. However, the evaluation indicated that Japanese market does not support the underpricing process, while the investors rationally evaluate the prices of stocks, which are listed. The researcher directly uses 184 IPO firms from 2004 to 2011, which is listed in Japanese stock market to evaluate the presence of IPO underpricing. Furthermore, the different stock exchange present in Japan is evaluated in the empirical research for understanding the price behaviour of IPOs.
Moreover the evaluation is conducted onto daters firstly from the returns provided on the first day and the returns provided after 30 days of IPO initiation. The researcher relevantly uses descriptive statistics, abnormal return, CAAR, p-value, and AAR value to detect underpricing of IPOs (Shimizu and Takei 2018). The finding section of the research relatively indicates that IPO underpricing is not present in Japanese stock market, as the investors fairly and rationally price the stocks. In addition, the calculation also indicates that the IPOs prices observed provide abnormal returns on the day of the initiation. However, the abnormal returns are not present after 30 days of investment, which directly indicates that underpricing of a particular stock is not conducted by investors to generate higher return. From the valuation of the empirical research it could be identified that abnormal return on a single day parade are identified which is not continued after the trading day (Shimizu and Takei 2018).
Typical research directly concluded that the short-run performance of IPU in the Japanese market does not provide an indication regarding the underpricing mechanism. therefore it could be understood that investors in Japan utilizes the information adequately minimise the negative impact by minimising the usage of underpricing of particular stock. From the valuation and statistical data provided in the US search confirms that there is no short run it on the pricing that could be detected in the stock market of Japan. However, there is a presence of abnormal returns, which is generated on the initial trading day. Nonetheless, such a dedicated or abnormal return condition was conducted during the initial stage of IPOs, as investors wanted to rely on the price action of the IPO (Shimizu and Takei 2018)
Therefore, from the valuation it could be identified that Japanese is a unique country where the investors do not under price the IPO for generating higher rate of returns from investment. This is due to the cultural difference in Japan as it minimises the return generation capacity of investors while increasing their financial growth. Consequently, investors need to conduct adequate investment decision before investing in a particular stock during its initial stage (Shimizu and Takei 2018). This is produced return generation capacity of IPOs directly minimises the interest of investors regarding the new investments scope. The evaluations conducted in Japan directly allow investors to increase the returns on different products, as the risk attribute of IPS is a relatively low in Japan. Hence, from the evaluation it could be identified that IPO initiation conducted in US and Australia market does not have the negative impact of underpricing.
Reference and Bibliography:
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Au.finance.yahoo.com. (2018). ^AORD Historical prices | ALL ORDINARIES Stock – Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/%5EAORD/history?period1=1427826600&period2=1501439400&interval=1d&filter=history&frequency=1d [Accessed 26 Apr. 2018].
Beck, J., 2017. Determinants of IPO Underpricing: Tech vs Non-Tech Industries. Major Themes in Economics, 19(1), pp.39-55.
Boonchuaymetta, E., 2018. Management of the initial public offering performance. AU Journal of Management, 9(2), pp.53-65.
Boulton, T.J., Smart, S.B. and Zutter, C.J., 2017. Conservatism and international IPO underpricing. Journal of International Business Studies, 48(6), pp.763-785.
Daniel, S.G.H., 2017. An Empirical Investigation of the IPO Underpricing Phenomenon: Evidence from the Singapore IPO Market (Doctoral dissertation).
Datanalysis.morningstar.com.au.ezproxy-b.deakin.edu.au. (2018). Shibboleth Authentication Request. [online] Available at: https://datanalysis.morningstar.com.au.ezproxy-b.deakin.edu.au/af/company/pricehistory-dailyadj?glossaryPage=company%2Fpricehistory&ASXCode=RFN&xtm-licensee=datpremium&page=1&resultsperpage=50&xsl_start_date=2017-07-09&xsl_end_date=2017-07-12&xsl_frequence=Daily&xsl_type=Adjusted&xsl-graphtype=tr10&active=PRC_Sec1 [Accessed 26 Apr. 2018].
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Qiming, T., Hui, C. and Li, M., 2017. Did the Price Limits Change the Reaction Pattern of the IPO Underpricing. Quarterly Journal of Finance, 2, p.004.
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