Why Are the First Day Returns of China’s IPOs So High? (2024)

FAQs

Why Are the First Day Returns of China’s IPOs So High? ›

The high first day returns of China's IPOs are most likely generated from on-market overpricing. Government intervention, market speculation, special ownership structure, strategy of proceeds maximization and risk concerns are the main drivers of the high first day returns.

Do IPOs usually go up on the first day? According to Statista, first-day IPO stock performance does historically show returns. In 2020, when 471 companies (including blank-check holding companies) went public, the average first-day IPO gain was 36%. That broke the previous record in 2013 of 21%.

Do IPOs Usually Go Up or Down? Although stocks increase an average of 18.4% on their first day of trading, 31% of IPOs decrease when they start to trade. Calculations of IPO profits show that almost 50% of IPOs decrease from their day-one trading price on their second day of trading.

Initial IPO returns in the United States fluctuated between 2005 and 2022. Throughout the period considered, 2020 was the best year for first-day gains, amounting to 23 percent. In 2022, the average first-day gain after an IPO in the U.S. was eight percent.

While the underwriting fee typically constitutes the largest direct cost that a company incurs as it goes through an IPO, the legal, accounting and tax costs are also consequential and can increase significantly for companies facing additional complexities in preparing for an IPO.

However, the 3-day rule advises investors to wait for a full 3 days before buying shares of the stock. This rule clarifies the importance of patience in making best high return investment decisions. Lower Your Cost! Open an IBKR account with no added spreads, markups, account minimums, or inactivity fees.

If already decided that you are going to apply for the IPO, then go for it on the very first day or the second day. If the investor applies on the last day, it might cause few issues like the bank account is not responding due to HNI and QIB high subscription or any other technical issues.

How Do You Know if the IPO Is Undervalued or Overvalued? Valuing a company is a subjective process. A good starting point would be to analyse the financials it's required to disclose as part of the IPO and objectively review how much of its growth prospects are achievable and how much this would add to earnings.

Waiting until the stock starts trading

Once a stock is public, it's out in the market spotlight with its peers. The days, weeks, and months following an IPO will typically reveal whether it was priced well and what kind of growth prospects might lie ahead.

Yes, you can sell IPO shares after the listing. Regular trading in IPO shares begins at 10:00 a.m. on the day of listing. Only anchor investors have a lock-up period for IPO shares. Retail investors, QIB, HNI and employees can sell IPO shares at any time once they are listed on the stock exchange.

What is the meaning of an initial return for an IPO? ›

IR is the IPO initial return, defined as the percent difference between the offer price and the closing price on the 21st day of trading (as described in section 2.1).

An investor may sell IPO shares after 10 a.m. on the day of listing, just as he may sell any other stock on the exchange. IPO shares are traded as normal shares after 10 a.m. on the day of listing. Note that exchanges hold a special pre-opening trading session for newly listed companies between 9:00 and 10:00.

Here's one of the best IPO tips and tricks that you can use. Always place your bids at the cut-off price. As you've already seen above, companies will only consider bids that are on or above the cut-off price. Therefore, by placing your bids at the cut-off price, you can increase the chances of getting allotted.

In fact, these processes are so complex, costly , and challenging that only 20% of IPOs are actually successful.

The majority of IPOs do not outperform one-month treasury bills. The top 365 performing IPO firms (3.23% of the total) account for 100% of the total net wealth creation. Beyond the top 365 performing firms, the remaining 10,947 IPO firms (96.77% of the total) collectively earn the risk-free rate in their lifetimes.

If you're considering investing in an IPO, it's important to carefully consider the risks involved. While there are some benefits to this type of asset, there's no guarantee your bet on an IPO will pay off, particularly, if the company is not well established.

First-day returns is the percentage change from the offer price to the closing price.

Initial return for an IPO is the return made on the first day of trading before closing off the day. If the initial return is high, then it creates a strong basis for making investment decisions. High returns on the market translate to high initial returns, which leads to positive investment decisions.

Initial underpricing occurs when the offer price is too low. That is, the issue will be underpriced and its price will soar on the first trading day.