Do Chinese IPOs Really Underperform in the Long Run?

Abstract

The empirical examination of the long-term performance of Chinese initial public offerings (IPOs) is the subject of this article. Using the calendar-time factor-regression method, the authors find that Jensen’s alpha, their measure for post-IPO three-year abnormal returns for 245 monthly IPO portfolios from July 1992 through December 2012, can vary from –1.15% to 0.49% per month, depending on factor specifications in the regression and weighting specifications in the portfolio formation. However, alpha estimates in almost all factor-weighting scenarios do not differ from zero after correcting for the new listing bias, indicating that Chinese IPOs do not underperform in the long run compared with their non-IPO counterparts. The findings report in this article highlight the importance of measurement problems in estimating long-term performance of Chinese IPOs.

TOPICS: Emerging, portfolio management/multi-asset allocation