Retail IPO in Emerging Markets Retail IPO in Emerging Markets International Academic Conference on Economic and Social Developmen Dmitry Kokorev Dmitry Kokorev www.cfcenter.ru http://en.cfcenter.ru/ www.cfjournal.ru Basic Research Programme of the Higher School of Economics in 2010 1
XI International Academic Conference on Economic and Social Development. Retail IPO in Emerging Markets. Dmitry Kokorev www.cfcenter.ru http://en.cfcenter.ru/ www.cfjournal.ru. Basic Research Programme of the Higher School of Economics in 2010. IPO: definition and main issues. - PowerPoint PPT Presentation
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Retail IPO in Emerging MarketsRetail IPO in Emerging Markets
XI International Academic Conference on Economic and Social Development
Dmitry KokorevDmitry Kokorev
www.cfcenter.ruhttp://en.cfcenter.ru/
www.cfjournal.ru
Basic Research Programme of the Higher School of Economics in 2010 1
IPO - issuing shares to the general public for the first time, with the expectation that a liquid market will develop.
Main issues:
1) Underpricing (the price change measured from the offering price to the market price on the first trading day, 16% in US Market) [Ritter, Ibbotson]
2) Long-Run performance (poor stock price performance of IPOs in the long run, -20% 3-years abnormal return in US Market) [Ritter,Loughran]
3) Market timing (cycles existence in both the volume and the average initial returns of IPOs) [McDonald, Titman, Zingales]
2
IPO: definition and main issues
Type of owner (Private vs State Owned) [Perotti, Megginson]
Type of investor (Retail vs Institutional) [Aggarwal,
Ljungqvist, Wilhelm]
Country [Ritter, Loughran]
Other factors (IPO size, number of shares offered,
company’s age, operational performance before offering, etc)
3
Key factors, which affect IPO return
IPO in emerging markets: database
Basic criteria
Company form one of emerging markets
Time period: 2003-2010
Shares – actively traded
Market cap > $30 Mln
4
Data base
1911 offerings
15 emerging markets
Source: Bloomberg, Factiva, VanDijk
IPO in emerging markets: country differences
China [Guo, McGuinness]
A – shares vs Other shares
Government interventionBefore 2001 – planning system of IPO
Price regulation
System of non-tradable securities
High level of demand from retail investors
Near 2300 companies, $1 700 bln.
5
India [Ghosh]
Most of companies – private
22 stock-exchanges
High level of demand from local retail investors and NRI
More than 6000 companies, $700 bln.
Brazil [Cigerza]
Developed rules of trading
Almost none of government intervention
Foreign and retail investors actively participate
Most of companies trade only preferred shares (family owned)
Near 400 companies, $600 bln.
Russia
A lot of Open Joint-Stock companies through Privatization, but most of them – non-tradable
Low market liquidity and level of activity of retail investors
Near 200 companies, $670 bln.
IPO in emerging markets
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Underpricing Average 1-Year return Average 2-Year return Average 3-Year return
Emerging Markets Emerging Markets (w/out A-shares) USA [Ritter]
Emerging markets vs USA
*Average Long-Run return – buy-and-hold return, adjusted by country index (BHAR)