We calculate buy-and-hold abnormal returns (Barber and Lyon 1997) over one-,
pessimistic a long-term outlook on the performance improvements available to
three- and five-year periods, i.e. subtract the contemporaneous return on an index
consistently improve in the longer run, suggesting that the market tends to take too
from the return on each privatised firm’s shares. Benchmark indices are the
country and industry index). In fact, both absolute and abnormal share returns
Datastream Total Market Index for each country, and the Datastream Global Oil and
(over the longer run oil and gas SIPs substantially outperform both their respective
Gas Index. Both straight and value-weighted performance averages are shown to
the industry as a whole underperformed relative to country indices) nor across time
account for the possibility of outperformance of smaller stocks. We further report the
benchmarks (there is an outperformance relative to the industry index, suggesting that
initial offer return20, which indicate moderate (at the median level) to substantial (at
Rel. to Global O&G index (%)
privatisation offers relative to country indices, but this is neither consistent across
the mean level) underpricing of oil and gas privatisations.
Within the first year, there is some evidence of stock underperformance of
Table 5: Buy-and-hold abnormal returns
Rel. to country index (%)
Simple averages, buy-and-hold returns, excluding IPO return on 1st day of trading
Initial offer return
Absolute return (%) 3y
Initial offer returns for 22 IPOs in the sample are reported in the second column; buy-and-hold returns for all 28 privatisation offerings exclude initial offer return (i.e. assuming that shares are bought at closing price of first trading day).
Weighted averages (by market cap at end of 1st day of trading, in inflation-adjusted US$)
which have been taken over and delisted, the 26 remaining firms as of 01 March 2007 had an aggregate market capitalisation of almost US$1.4 trillion.
20 For the six companies already listed, initial offer returns are based on the closing share price on the last day before issuance of the shares to investors.