## IPO Behavior in GCC Countries: Goody-Two-Shoes or Bad-to-the-Bone?

_IMF Working Papers, July 1, 2007_

## Source details

**Canonical URL:** [IPO Behavior in GCC Countries: Goody-Two-Shoes or Bad-to-the-Bone?](https://www.imf.org/en/publications/wp/issues/2016/12/31/ipo-behavior-in-gcc-countries-goody-two-shoes-or-bad-to-the-bone-21032)

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## Bibliographic details
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867138.001

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### Overview
- Study documents underpricing of initial public offerings (IPOs) for 47 firms that went public between 2001 and 2006 in the equity markets of the six Gulf Cooperation Council (GCC) countries.
- Focus on initial abnormal returns, one-year horizon performance, drivers of abnormal returns, and investor behavior over time.

### Key findings
- The average initial abnormal returns of 290 percent exceed those found in the existing literature for both developed and emerging markets IPOs.
- IPOs' returns over the one-year horizon beat the market index benchmark.
- Once initial returns are excluded, IPOs present negative abnormal returns over the one-year horizon, consistent with findings in other industrial and emerging markets.
- Empirical models reject the hypothesis that IPOs' performance is driven by the common independent variables employed in the literature.
- Country- and industry-specific characteristics, in addition to the timing of the offers, play key roles in explaining the abnormal returns of IPOs.
- Empirical findings support the hypothesis that investors initially tend to be over-optimistic about the performance of IPOs, but grow more pessimistic over time.

### Empirical results and explanatory variables
- Sample: 47 firms, IPOs between 2001 and 2006 in the six GCC countries.
- Measured outcomes:
  - Initial abnormal returns: 290 percent (average).
  - One-year horizon: outperformance of market index benchmark when including initial returns; negative abnormal returns when excluding initial returns.
- Model conclusions:
  - Common independent variables used in IPO literature do not explain GCC IPO performance in this sample.
  - Significant explanatory factors identified: country-specific characteristics; industry-specific characteristics; timing of the offers.

### Interpretation and implications
- Investor behavior dynamics:
  - Initial investor over-optimism about IPO performance.
  - Increasing investor pessimism over time, leading to negative abnormal returns after excluding initial gains.
- Market structure implications:
  - Standard cross-country IPO explanatory frameworks may not apply in the GCC context without accounting for country- and industry-specific factors and offer timing.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/ipo-behavior-in-gcc-countries-goody-two-shoes-or-bad-to-the-bone-21032_