Look out for Cold IPOs

In the February issue of Pulses, there is a very insightful article on SGX-listed IPOs. Based on the first-year performance of IPOs over the last decade, the article concludes that oversubscribed shares (i.e., those share prices which usually increase significantly on first trading day) tend to perform more badly at the end of the first year, as compared to an undersubscribed share (i.e., share price dropped on first trading day).

Two points are useful for the investor:

1) The result is so significant that there is an almost 30% price difference between oversubscribed (read: popular) stocks and undersubscribed stocks after 1 year.

2) The undersubscribed stocks tend achieve price gains during the third to ninth month after the IPO.

This is a clear case of market inefficiency, and the shrewd investor will maximise this to his/her fullest advantage.

Good night, and good luck!