Underpricing of Initial Public Offerings in Hot and Cold Markets: An Empirical Study on Borsa Istanbul


  • Ezgi Tuncay Ministry of Treasury and Finance, Turkey
  • Mehmet Karan
  • Eren Miski Aydin Hacettepe University




The study aims to evaluate the initial public offering performance of Borsa Istanbul companies during the hot and cold periods. The size of the companies, industry concentration and investor optimism are considered in this respect.  The study covers the 119 IPOs of various sizes from different industries between 2010 and 2017 just after the global financial crisis. The standard event study methodology is applied. This study has revealed the existence of post-crisis underpricing effects in Turkey. Moreover, the research shows that although low pricing is valid in hot periods, hot and cold markets do not differ significantly from each other in this context. Besides, this study finds that the low price effect exists for small firms, and this effect is more common in hot markets. On the other hand, although there is a relationship between consumer confidence index and low price, no relation with industry concentration was found.


Açikgöz Ş., Gökkaya V. (2017), The variability of IPO initial returns in Turkey, “Ege Academic Review”, vol. 17 no. 1, pp. 33-58.

Agathee U.S., Brooks C., Sannassee R.V. (2012), Hot and cold IPO markets. The case of the stock exchange of Mauritius, “Journal of Multinational Financial Management”, vol. 22 no. 4, pp. 168-192.

Allen F., Faulhaber G.R. (1989), Signalling by underpricing in the IPO market, “Journal of Financial Economics”, vol. 23, no. 2, pp. 303-323.

Baker M., Wurgler J. (2000), The equity share in new issues and aggregate stock returns. “The Journal of Finance”, vol. 55 no. 5, pp. 2219-2257.

Bayram V. (2015), Short and long run performance of initial public offerings in Turkey, PhD Thesis, Istanbul.

Baron D.P. (1982), A model of the demand for investment banking advising and distribution services for new issues, “The Journal of Finance”, vol. 37 no. 4, pp. 955-976.

Bildik R., Yilmaz M.K. (2006), The market performance of initial public offerings in the Istanbul Stock Exchange, https://pdfs.semanticscholar.org/0ccb/5e5d521c341101cb4e4dd97e6e34a39be0a2.pdf?_ga=2.131314383.1331677726.1587832674-1350871664.1587832674 [25.04.2020].

Brown G.W., Cliff M.T. (2004), Investor sentiment and the near-term stock market, “Journal of Empirical Finance”, vol. 11 no. 1, pp. 1-27.

Chalk A.J., Peavy III J.W. (1987), Initial public offerings. Daily returns, offering types and the price effect, “Financial Analysts Journal”, vol. 43 no. 5, pp. 65-69.

Chen S.S. (2011), Lack of consumer confidence and stock returns, “Journal of Empirical Finance”, vol. 18 no. 2, pp. 225-236.

Cornelli F., Goldreich D., Ljungqvist A. (2006), Investor sentiment and pre-IPO markets, “The Journal of Finance”, vol. 61 no. 3, pp. 1187-1216.

Çakır N., Küçükkocaoğlu G., Kapucu H. (2017), Initial Public Offerings in hot and cold markets, “International Journal of Economics and Administrative Studies”, online ISSN 1307-9859, pp. 695-708.

Dahlquist M., Robertsson G. (2001), Direct foreign ownership, institutional investors, and firm characteristics, “Journal of Financial Economics”, vol. 59 no. 3, pp. 413-440.

Daniel K., Hirshleifer D., Subrahmanyam A. (1998), Investor psychology and security market under and overreactions, “The Journal of Finance”, vol. 53 no. 6, pp. 1839-1885.

Derrien F., (2005), IPO pricing in hot market conditions. Who leaves money on the table?, “The Journal of Finance”, vol. 60 no. 1, pp. 487-521.

Elmas B., Amanianganeh M. (2013), Analysis of the variables which can affect low pricing anomaly in companies subject to public offering in BIST: 1995-2010 period, Afyon Kocatepe Üniversitesi, İİBF Dergisi, C. XV, S. II.

Fama E., French K. (1993), Common risk factors in the return on stocks and bonds, “Journal of Financial Economics”, vol. 33 no. 1, pp. 3-56.

Fisher K.L., Statman M. (2003), Consumer confidence and stock returns, “The Journal of Portfolio Management”, vol. 30 no. 1, pp. 115-127.

Helwege J., Liang N. (2004), Initial Public Offerings in hot and cold markets, “Journal of Financial and Quantitative Analysis”, vol. 39 no. 3, pp. 541-569.

Hoffman A.O., Post T. (2014), Self-attribution bias in consumer financial decision-making. How investment returns affect individuals’ belief in skill, “Journal of Behavioral and Experimental Economics”, vol. 52, pp. 23-28.

Ibbotson R.G., Sindelar J.L., Ritter J.R. (1994), The market’s problems with the pricing of initial public offerings, “Journal of Applied Corporate Finance”, vol. 7 no. 1, pp. 66-74.

Ibbotson R.G., Jaffe J.F. (1975), Hot issue markets, “The Journal of Finance”, vol. 30 no. 4, pp. 1027-1042.

Jansen W.J., Nahuis N.J. (2003), The stock market and consumer confidence. European evidence, “Economics Letters”, vol. 79 no. 1, pp. 89-98.

Jenkinson T., Ljungqvist A. (2001), The role of hostile stakes in German corporate governance, “Journal of Corporate Finance”, vol. 7 no. 4, pp. 397-446.

Kahneman D., Slovic S.P., Tversky A. (1982), Judgment under uncertainty. Heuristics and biases, Cambridge University Press, Cambridge – New York.

Kang J.K. (1997), Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan, “Journal of Financial Economics”, vol. 46 no. 1, pp. 3-28.

Katti S., Phani B.V. (2016), Underpricing of initial public offerings: a literature review, “Universal Journal of Accounting and Finance”, vol. 4 no. 2, pp. 35-52.

Keim D.B. (2008), Financial market anomalies, in: The new Palgrave dictionary of economics, Palgrave Macmillan, London.

Ljungqvist A., Nanda V., Singh R. (2006), Hot markets, investor sentiment, and IPO pricing, “The University of Chicago Press Journals”, vol. 79 no. 4, pp. 1667-1702.

Lakonishok J., Shleifer A., Vishny R.W. (1994), Contrarian investment, extrapolation, and risk, “The Journal of Finance”, vol. 49 no. 5, pp. 1541-1578.

Lee C.M., Shleifer A., Thaler R.H. (1991), Investor sentiment and the closed-end fund puzzle, “The Journal of Finance”, vol. 46, no. 1, pp. 75-109.

McLean D., Pontiff J. (2016), Does academic research destroy return predictability?, “The Journal of Finance”, vol. 71 no. 1, pp. 5-32.

M’kombe C., Ward M. (2002), Aftermarket price performance of initial public offerings on the JSE, “Investment Analysts Journal”, vol. 31 no. 5, pp. 7-20.

Merikas A., Gounopoulos D., Nounis C. (2009), Global shipping IPOs performance, “Maritime Policy & Management”, vol. 36 no. 6, pp. 481-505.

Muscarella C.J., Vetsuypens M.R. (1989), A simple test of Baron’s model of IPO underpricing, “Journal of Financial Economics”, vol. 24 no. 1, pp. 125-135.

Novy-Marx R., Velikow M. (2015), A taxonomy of anomalies and their trading costs, “The Review of Financial Studies”, vol. 29 no. 1, pp. 104-147.

Oehler A., Rummer M., Smith P.N. (2005), IPO pricing and the relative importance of investor sentiment. Evidence from Germany, “SSRN” 592302, https://poseidon01.ssrn.com/delivery.php?ID=152013104065025064091085068026026102101074051042007060126088028090122096127005075073055020029097121126020124081005111126006062007028064035114077006023098021098021026085121070072122025006079005069080069115027125127096115104095119093078115110081105&EXT=pdf [24.04.2020].

Otoo M.W. (1999), Consumer sentiment and the stock market, Board of Governors of the Federal Reserve System, https://www.federalreserve.gov/Pubs/feds/1999/199960/199960pap.pdf [27.01.2020].

Persons J.C., Warther V.A. (1997), Boom and bust patterns in the adoption of financial innovations, “The Review of Financial Studies”, vol. 10 no. 4, pp. 939-968.

Reilly F.K., Hatfield K. (1969), Investor experience with new stock issues, “Financial Analysts Journal”, vol. 25 no. 5, pp. 73-80.

Ritter J.R. (1984), The hot issue market of 1980, “Journal of Business”, vol. 57 no. 2, pp. 215-240.

Ritter J.R. (1991), The long-run performance of Initial Public Offerings, “The Journal of Finance”, vol. 46 no. 1, pp. 3-27.

Ritter J.R., Welch I. (2002), A review of IPO activity, pricing, and allocations, “The Journal of Finance”, vol. 57 no. 4, pp. 1795-1828.

Rock K. (1986), Why new issues are underpriced, “Journal of Financial Economics”, vol. 15 no. 1-2, pp. 187-212.

Stoughton N., Wong K.P., Zechner J. (2001), IPOs and product quality, “The Journal of Business”, vol. 74 no. 3, pp. 375-408.

Subrahmanyam A., Titman S. (1999), The going public decision and the development of financial markets, “The Journal of Finance”, vol. 54 no. 3, pp. 1045-1082.

Van Heerden G., Alagidede P. (2012), Short run underpricing of initial public offerings (IPOs) in the Johannesburg Stock Exchange (JSE), “Review of Development Finance”, vol. 2 no. 3-4, pp. 130-138.

Welch I. (1989), Seasoned offerings, imitation costs, and the underpricing of initial public offerings, “The Journal of Finance”, vol. 44 no. 2, pp. 421-449.