The asset-backing ratio, rate of subscription and the intraday return of IPOs in Hong Kong.

Abstract

Under pricing phenomena has been adopted and criticized globally since past few decades . The ratio of under pricing is comparatively higher in developing countries that have gained investors ' attention in recent times . Hong Kong 's IPO market also posits interesting facts regarding under pricing procedures and their impact on initial returns for issuers as well as investors . Among various factors that affect pricing of IPOs rate of subscription and asset-backing ratio are among the most influenced factors . This investigates relationship between various variables that are related to under pricing and

hence , affect intraday returns of investors . Regression analysis is used to establish positive negative or null relationship between rate of subscription and level of under pricing in Hong Kong by obtaining data from a more recent period Similarly , relationship between asset-backing ratio and IPO under pricing is established to understand the pricing mechanism of underin Hong Kong

Introduction

Underpricing of Initial Public Offerings (IPOs ) is a historic norm in both developed and developing . Hiring of underto place reasonable price for IPOs has been a custom of equity markets with average under pricing in between the range of 10-17 . However , during last decade , world view most unjustified under pricing ratios with the level rising to over 50 . From the 7 under pricing in 1980s to 15 ratio of under pricing during early 1990s , the ratio has raised to substantial levels during 2000s (Loughran and Ritter , 2004 . The increase in under pricing is mainly attributed to potential gains...