The Relationship Between Pre-IPO Market and The Price Volatility of New IPO Stocks

During the period of 2011~2015, there are 304 new IPO companies listing in Taiwan securities market, including 77 foreign companies. Among the 77 foreign companies, there are 49 companies completing the entire IPO procedure without trading in the “Pre-IPO market” (or Emerging Stock Market). The study adoptes “price volatility “as a dependent variable since it could reflect the market price risk, and aims to analyze whether the differences between non-pre-IPO-traded-foreign companies with inherited higher risk, and new IPO companies with trading history in the pre-IPO market, are significant. The findings are stated below, 1.There is a negative relationship between “price volatility” and “trading in the pre-IPO market” When we use price volatility as the dependent variable, the independent variable—“traded in the pre-IPO market” has coefficient from -0.865~-1.214. We could conclude from the aforementioned analysis that the relationship between “price volatility” and “trading in the pre-IPO market” is negative. In other words, new IPO companies traded in pre-IPO market could have lower price volatility. 2.As of the foreign company, the first 30 days’ price volatility after IPO could be lower for those who traded in the pre-IPO market. As of the foreign companies, “trade in the pre-IPO market” variables have negative impacts on the price volatility, according to regression analysis. On the other hand, the descriptive statistics also present the similar result—the price volatility would be lower for those foreign company traded in the pre-IPO market. 3.In addition to “trade in the pre-IPO market”, there are several influential independent variables for the price volatility, including the “stock turnovers”, average outstanding shares, “lottery winning rate”, and “industry—electronic or biotechnology sectors”. However, “traded in the pre-IPO market” has the most significant and prominent impact on the price volatility among all independent variables. It could be concluded that the competent authorities should enforce the IPO applicants to trade in the pre-IPO market, if the competent authorities aim to find a feasible and efficient method to stabilize IPO price and reduce the risk of investors.