New listings share price behaviour on the Johannesburg Stock Exchange

Abstract

The objective of this paper is to determine the price behaviour of new listings on the JSE during the period 1985-1987. The results clearly indicate that those investors who acquired new issues at the initial offering price attained significant short-term benefits in the form of a new issues premium followed by an after-market performance generally supportive of an efficiently operating market. Investors who acquired new issues subsequent to the initial offering earned negative returns (adjusted for market risk as well as systematic risk) during the first year of investment. The investigation reveals that new issues with very large price increases immediately subsequent to their offering do not have returns significantly different from new issues as a whole during the period up to one year following the listing. Investors in the secondary market, on balance, overestimated the return potential and/or underestimated the risk characteristics of new listings on the JSE.