APS 425 Case #3: due November 17, 2015


The Excel spreadsheet A425_CASE315.XLSX [and the equivalent Eviews workfile, A425_CASE315.WF1] contains monthly data from January 1960 through July 2015 on the market for initial public offerings (IPOs) in the United States. The source of the data is Jay Ritter’s web site. His paper with Roger Ibbotson and Jody Sindelar in the 1994 Journal of Applied Corporate Finance, “The Market’s Problem with the Pricing of Initial Public Offerings,” provides important
background information about these facts.

The data sets include the following variables:

  1. IPORet -- average first-day % return (excluding closed-end funds, REITs, acquisition companies, offer prices below $5, units, banks and S&Ls, and those not listed on CRSP).

  2. IPONum -- number of IPOs in the month.

  3. IPONetNum -- net number of IPOs (excluding closed-end funds, REITs, acquisition companies, offer prices below $5, units, banks and S&Ls, and those not listed on CRSP)

  4. Pup -- the percentage that priced above the original midpoint of the filing range (in other words, the IPO price rose above the forecast at the time of the initial filing for the IPO.

Based on these data, develop an analysis of IPO investing for your boss (the CEO of a hedge fund with good access to investment banks). If your hedge fund could acquire shares in IPO allocations, are there particular situations where you think this strategy might be most profitable? Are there other circumstances where you would recommend avoiding IPO investing?


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Last Updated on 11/2/2015