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To determine whether Australian initial public offerings
(IPOs) underprice in the short run, and to identify their
determinants, this study investigated the short-run market
performance o f 254 IPOs listed between 2006 and 2011 by
industry and year (listing and issue). To measure their shortrun performance, the first listing day returns were divided into
the primary market, the secondary market, and the total
market. The investigation was then extended to a post-day
listing analysis that included returns of up to nine trading days.
To identify the determinants of short-run market performance,
this study estimated binary regression models with offer, firm
and market characteristics. Marginal probability analysis was
also carried out to estimate the associated probability o f each
determinant that indicated a directional change in market
performance. The marginal probability analysis is a novel
contribution to the Australian IPO literature. The study found
that overall, the Australian IPOs underpriced by 25.47% and
23.11% based on the market-adjusted average abnormal return
(AAR) in the primary and total markets, respectively.
However, the secondary market analysis indicated that the
Australian IPOs overpriced by 1.55% based on the AAR. The
examination of post-listing returns showed that the Australian
IPOs underpriced based on the average cumulative abnormal
return (CAR), which signals that investors’ wealth can be
diluted in the long run. The overall results varied by industry
and year. The IPO period (IPOP), time to listing (TOTP),
listing delays (LISD), total net proceeds ratio (TNPR) and
market volatility (MV) were the main determinants for the
observed short-run performance. Marginal probability analysis
also indicated that the MV and TNPR had a significant effect
on the directional changes of the short-run performance. The
findings support Rock’s hypothesis and the uncertainty
hypothesis
