Question
In: Finance
True or False Please provide at least 5 sentences explaining why the following statement is true...
True or False
Please provide at least 5 sentences explaining why the following statement is true or false.
Initial public offerings (IPOs) perform poorly on the day following the IPO and well for periods of a year or longer after the IPO.
Solutions
Expert Solution
False, Initial public offerings (IPOs) perform poorly on the day following the IPO and well for periods of a year or longer after the IPO.
=> It is not true that the initial public offerings (IPOs) performs poorly on the day following the IPO and well for periods of a year or longer after the IPO. Rather, it performs good on the day following the IPO and poorly for periods of a year or longer after the IPO. This is because initially those who are not allotted the stock in IPO are in a hurry to buy the stock and the price of the stock is low. In the initial period, the investors do not know about the company and the P/E has not been determined by then, so the performance of the IPO on the following day is good. Initially the investors are optimistic about the company's performance but as the actual results of the company starts come-in, the investors value the stock according to the performance, so after a year or longer after the IPO, the stock do not perform.
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