Initial Public Offerings Trading Strategies Using Pre-Listing Information in Sri Lanka

Abstract

Main channel of information dissemination for initial public offerings (IPO) in pre listing stage is the prospectus. Auditor fee and director emoluments are two types of such information which investors do know in advance through prospectus. Industry and media publicity are also in the focus of investors in pre IPO stage. This study inquires whether such information can be used to form successful trading strategies in long run. IPO stock portfolios have been constructed based on above four types of information and their returns have been tested using four popular asset pricing models in this study to answer the above question. The findings confirm that long only strategies are successful in all four types of information while long and short strategies are proved to be a failure. The findings reveal also that portfolios consist of non-finance stocks, stocks with high media coverage, high audit fees and high director fees tend to provide highest returns compared to other IPO stock portfolios.