Overreaction in the thrift IPO aftermarket

Geoffrey C. Friesen, Christopher Swift

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


We study the initial returns and long-run performance of a unique sample of thrifts that have recently converted from mutual to stock form. In addition to a full claim on all IPO proceeds, new investors in a converted thrift also receive a claim on all pre-conversion market value at no cost. Thus, the average firm in our sample has a degree of underpricing automatically built into its offer price. We find that after removing the large initial returns, cumulative excess returns for the firms in our sample are positive for 12 months after the IPO. Beginning in the second year after the IPO, the average firm in our sample undergoes a significant price correction that lasts approximately 18 months and which produces negative cumulative abnormal returns for up to 5 years post-issue. Differences in risk-adjusted returns also indicate negative long-run returns, with poor performance concentrated in the second and third years following the IPO. The return differences are most pronounced among the small thrifts in our sample, and are broadly consistent with investor overreaction at the time of the IPO that continues for 6-12 months before prices begin reverting back to fundamental value.

Original languageEnglish (US)
Pages (from-to)1285-1298
Number of pages14
JournalJournal of Banking and Finance
Issue number7
StatePublished - Jul 2009


  • IPO underpricing
  • Mutual-to-stock thrift conversion
  • Overreaction

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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