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The Long-run Abnormal Performance of Jordanian Initial Public Offerings (IPOs) listed in Amman Stock

 

Abstract

This study aims at verifying the long-run abnormal performance for the Jordanian initial public offerings (IPOs) listed in Amman stock exchange during the period from ( 1st January, 1993 until 31st December, 2011). In order to achieve the study objectives, the researchers applied the most common approach in the previous literature which is called ''The Event Study'' on the study sample which consisted of all the Jordanian initial public offerings that are listed in Amman stock exchange during the study period, which were (119) companies .Then, the researchers calculated the monthly returns for these companies for 60 months (5 years) after public offering.

In order to explore the long-run abnormal performance, the researchers applied three major aggregating models which are: Firstly, the cumulative abnormal returns (CAR). Secondly, the buy and hold abnormal returns (BHAR). Thirdly, the wealth relative model (WR). The researchers also chooses three major benchmarks which are: the general monthly index for Amman stock exchange weighted by market capitalization (ASEI), the matching firms (MF) for the Jordanian initial public offerings in terms of the (size, age, and sector) as much as possible, which also already exist in the market, and their stocks traded in the Amman stock exchange and the capital assets pricing model (CAPM).

The results of the analysis showed that the study corresponds to most of the previous studies with regard to the long-run underperformance phenomenon for the initial public offerings (IPOs), but the level of this underperformance was different based on the benchmark employed to measure the long-run performance. This conclusion was also found by the results of some previous studies.

while for testing whether there are statistically significant differences in the means  with regard to the abnormal returns (AR), the cumulative abnormal returns (CAR), the buy and hold abnormal returns (BHAR) , and the wealth relative (WR), based on the benchmark which is applied in comparison and measurement, the study showed that  there are statistically significant differences in the  abnormal returns (AR) after applying the three benchmarks mentioned earlier by using the parametric  '' One Sample  T-test''. The study also showed that there are statistically significant differences in the wealth relative (WR) also after applying the three benchmarks , by  using  the "traditional T-test "and through the event window of (the end of the  1st, 6th, 12th,24th, 36th, 48th and 60th  months) after going public .

As for the cumulative abnormal returns (CAR), and the buy and hold abnormal returns (BHAR) , the study proved that there statistically significant differences in the means with regard to both models, only when the Amman stock exchange general monthly index is applied as a one of the benchmarks that are applied in the study, by using the "traditional T-test" and the same event window.

 

On the other hand, these differences of the cumulative abnormal returns (CAR), the buy and hold abnormal returns (BHAR) are not statistically proved  by using the matching firms (MF) and the capital assets pricing model (CAPM )as benchmarks  by using the same T-test  and the same event window that were used before .

 

International Journal of Economics and Finance

Vol 7, No 3 (2015)

 

DOI: 10.5539/ijef.v7n3p109