Price Behaviour Of New Share Listings In Nigeria

Abstract

The paper investigates whether new listings on the Nigerian Stock Exchange are under-priced or not. On aggregate, we find that investors are able to make abnormal gains from new listings on the first tier (main) market of the Nigerian Stock Exchange (NSE). Our analyses show that up to one year after listing the average differences of real share prices are positively significant to confirm the observation. The situation is however different in the second (emerging) tier market. Our analyses show that the real prices of newly listed shares in the second tier market do fall. Such an observation could, however, be attributed to thin trading of shares which phenomenon is characteristic of second tier markets. When we partition the data into pre-and post-deregulation periods, we observe under-pricing of new equity listings to have been severe during the pre-deregulation period, and hence more opportunity for abnormal gains. We find opportunities for making abnormal gains to be not as strong during the post-deregulation period. When the data is analysed on the basis of whether or not new listings are financial institution firms, some interesting patterns of price behaviour are found. While we observe possibilities of making abnormal gains in new listings of non-financial companies and insurance companies, these possibilities are absent in new listings of banking sector shares indicating that they are efficiently priced relative to those of other sectors.