Value relevance of the Edwards-Bell-Ohlson Model in predicting initial public offering valuation and underpricing : Australian evidence

Mamet, Michel A.. (1998). Value relevance of the Edwards-Bell-Ohlson Model in predicting initial public offering valuation and underpricing : Australian evidence Honours Thesis, School of Business, The University of Queensland.

       
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Author Mamet, Michel A..
Thesis Title Value relevance of the Edwards-Bell-Ohlson Model in predicting initial public offering valuation and underpricing : Australian evidence
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1998
Thesis type Honours Thesis
Total pages 82
Language eng
Subjects 14 Economics
Formatted abstract This study investigates the use of the Edwards-Bell-Ohlson (EBO) model in the valuation of initial public offerings and in the prediction of short-term returns, better known as underpricing. The study explores several hypotheses motivated by the initial public offering valuation and Edwards-Bell-Ohlson literature. The results reveal that this metric contains value relevant information in explaining cross-sectional offer and initial day closing prices. The implications of this framework's accuracy are extended by comparing the computed value-to-price ratios to pre-set filters, thereby attempting to select portfolios of highly underpriced securities. When compared to the benchmark generated by applying a bootstrap simulation technique, this strategy appears successful in detecting the excessively underpriced securities, resulting in equally-weighted average returns in excess of 57 percent. The extreme undervaluation of certain stocks anticipated by this model, may however not be viable due to allocation uncertainties or the market's anticipation of such anomalies. The results further indicate that beyond such extreme underpricing, value-to-price appears to be a poor predictor of short-term initial public offering returns.

 
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Created: Thu, 28 Oct 2010, 10:12:40 EST by Ning Jing on behalf of The University of Queensland Library