Abnormal returns for IPOs on the Swedish stock exchange

Abstract

We examine the occurrence of underpricing and short-term performance of a sample of 216 Swedish IPOs between 2017-2021. The theories used are the Efficient Market Hypothesis, Underpricing, Information asymmetry which contains both the Principal Agent Theory and the Signaling Theory, and beyond that, the Winner’s curse. We conduct an event study to measure the cumulative abnormal returns up until 15 days after the IPO, which is followed by five multivariate regressions. We find a statistically significant average market adjusted underpricing of 9.37 percent and that IPOs with large underwriters tend to perform better. The largest underwriters in our sample shows an average abnormal return of 14.95 percent for the initial fifteen days of trading, compared to 3.11 percent for the smallest. Further, through the regression made, no statistical significance was found regarding the underwriter's size. However, variables such as the total costs of the IPO, the state of the stock market and the amount of the guarantee commitments of cornerstone investors of the IPO were shown to be statistically significant by the regressions.