Neneh, B.N., South Africa; Smit, V.A., South Africa
Nowadays, investors are progressively espousing an absolute returns approach for their long-term investments as global markets are unceasingly faced with economic uncertainty and market volatility (Foster, Jones and Nichols, 2014). However, prior research has primarily focused on identifying factors that can be used to predict long run relative returns. As such, it is important for the research and practitioner communities to identify factors that can help investors in predicting long-term absolute returns. The aim of this study is to determine if the same factors that have been noted to predict the relative returns of IPOs are also able to predict the absolute returns of the IPOs on the JSE. Using 290 companies listed on the JSE between 1996 and 2009, this study finds that mean IPO returns for the first three years post IPO are 3.19%, -9.60%, and -25.06% respectively for absolute returns and -7.67%, -34.6%, and -65.4% respectively for relative returns. It is also established that after three years, 109 companies have a positive absolute return while only 43 companies outperform the market benchmark. Furthermore, the results indicate that the market period is the only factor that can significantly predict both the absolute and relative returns with IPOs issued in the cold market periods having a higher probability of producing positive returns and outperforming the market benchmark than IPOs listed in the hot market periods. © Brownhilder Ngek Neneh, Van Aardt Smit, 2014.