UNDERPRICING AND LONG

UNDERPRICING AND LONG-RUN PERFORMANCE OF SHARE ISSUE PRIVATIZATIONS IN THE EGYPTIAN STOCK MARKET
Mohammed Omran
11Arab Academy for Science & Technology, College of Management & Technology, Egypt Arab Monetary Fund, Economic Policy Institute, United Arab Emirates
1Arab Academy for Science & Technology, College of Management & Technology, Egypt Arab Monetary Fund, Economic Policy Institute, United Arab Emirates
I would like to thank the executive editor, William T. Moore, and the referee, William Megginson, for their constructive and insightful comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Arab Monetary Fund.
Abstract
The underpricing of initial public offerings (IPOs) is documented for 53 share issue privatizations in Egypt between 1994 and 1998. Over several intervals (up to five years), I find mixed results: share issue privatizations sustain their positive performance and provide investors with positive abnormal returns over a one-year period; however, my results document negative abnormal returns over three- and five-year horizons. The initial excess returns are determined by ex ante uncertainty and oversubscription, whereas the aftermarket abnormal returns over a one-year period are driven by ex ante uncertainty and the price-earnings ratio. However, over three- and five-year periods, abnormal returns are significantly affected by initial excess returns, the price-earnings ratio, and, to a lesser extent, oversubscription. The empirical findings are consistent with IPO markets in which investors are overoptimistic about the performance of these issues but grow more pessimistic over time.