A Note on the Intraday Patterns of Initial Public Offerings: Evidence from Hong Kong


†Yan-leung Cheung, Professor (Chair) of Finance, Department of Economics and Finance, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong.e-mail: efsteven@cityu.edu.hk


This paper examines the intraday patterns of IPOs in Hong Kong during the period 1995–1998. The results reveal that the well-known under-pricing phenomenon of IPOs occurs only at the opening trading of new issues and vanishes afterwards. The return volatility of IPOs is found to be high during the first trading session, and declines rapidly during the rest of the first trading day until the end of the trading day. The intraday return volatility of IPOs is found to follow a double U-shape pattern, which is similar to that of the general market. A great deal of trading activity was recorded during the first five minutes of the trading day. Consistent results are obtained for IPOs registered during the pre-crisis and post-crisis periods. This paper has practical implications for investors. Investors can benefit from the under-pricing only if they subscribe for new shares in the primary market. There is, however, no profit-making opportunity for day traders who buy shares on the first trading day. This shows that the Hong Kong market is efficient in adjusting for the IPO under-pricing. In addition, it is likely that, because of Hong Kong's share allotment method, only big investors who apply for large numbers of shares can benefit from this under-pricing phenomenon.