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IPO Underpricing, Is It Interest(ing)? - Evaluating the impact of interest rate policy on the size of IPO underpricing

Neville, Jonathan LU and Clarin, Christoffer LU (2018) NEKN02 20181
Department of Economics
Abstract
Given the recent changes in how central banks use the tools they have at hand to control inflation and money supply this study aims to evaluate the effect that interest rate policy has had on IPO underpricing. More specifically, the effect that negative interest rate policies and quantitative easing has had on the size of the underpricing premium. To test these effects, we collected IPO data from 22 different countries, during seventeen years and calculated a quarterly average underpricing of these IPOs for every country. We then regressed interest rate and deviations from the Taylor rule as the main explanatory variables on the average IPO underpricing. The results showed that mainly deviations from the Taylor rule is a good explainer of... (More)
Given the recent changes in how central banks use the tools they have at hand to control inflation and money supply this study aims to evaluate the effect that interest rate policy has had on IPO underpricing. More specifically, the effect that negative interest rate policies and quantitative easing has had on the size of the underpricing premium. To test these effects, we collected IPO data from 22 different countries, during seventeen years and calculated a quarterly average underpricing of these IPOs for every country. We then regressed interest rate and deviations from the Taylor rule as the main explanatory variables on the average IPO underpricing. The results showed that mainly deviations from the Taylor rule is a good explainer of the average underpricing, where a positive deviation indicates that the average IPO underpricing premium increases. The Taylor rule deviations explanatory power also showed to be stronger during the time period 2009-2017. As a result we conclude that, while interest rates to some degree can explain average underpricing, it seems not to capture as much information as the deviations from the Taylor rule. The results of the paper widens the knowledge of the impact that the recent phenomenon of quantitative easing has had on financial markets in general and on IPO underpricing in particular. (Less)
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author
Neville, Jonathan LU and Clarin, Christoffer LU
supervisor
organization
course
NEKN02 20181
year
type
H1 - Master's Degree (One Year)
subject
keywords
IPO underpricing, Quantitative easing, Interest rate policy
language
English
id
8949434
date added to LUP
2018-07-02 15:40:47
date last changed
2018-07-02 15:40:47
@misc{8949434,
  abstract     = {Given the recent changes in how central banks use the tools they have at hand to control inflation and money supply this study aims to evaluate the effect that interest rate policy has had on IPO underpricing. More specifically, the effect that negative interest rate policies and quantitative easing has had on the size of the underpricing premium. To test these effects, we collected IPO data from 22 different countries, during seventeen years and calculated a quarterly average underpricing of these IPOs for every country. We then regressed interest rate and deviations from the Taylor rule as the main explanatory variables on the average IPO underpricing. The results showed that mainly deviations from the Taylor rule is a good explainer of the average underpricing, where a positive deviation indicates that the average IPO underpricing premium increases. The Taylor rule deviations explanatory power also showed to be stronger during the time period 2009-2017. As a result we conclude that, while interest rates to some degree can explain average underpricing, it seems not to capture as much information as the deviations from the Taylor rule. The results of the paper widens the knowledge of the impact that the recent phenomenon of quantitative easing has had on financial markets in general and on IPO underpricing in particular.},
  author       = {Neville, Jonathan and Clarin, Christoffer},
  keyword      = {IPO underpricing,Quantitative easing,Interest rate policy},
  language     = {eng},
  note         = {Student Paper},
  title        = {IPO Underpricing, Is It Interest(ing)? - Evaluating the impact of interest rate policy on the size of IPO underpricing},
  year         = {2018},
}