Long-Run Performance after IPO

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Collection of Data

In this section the data collection process will be discussed. Where we found the data and why we used certain methods will be important questions that will be answered in this section.

Time Series Data

Individual Sports Clubs Historical Stock Price

As our intention is to analyze the performance of sports club after an IPO has been per-formed, analyzing historical stock price movements since the IPO date gives us useful information in our analysis and in drawing conclusions with regard to this. We hand-picked several clubs which we feel are of importance to our research and obtained his-torical time series data from the Yahoo Finance database and Datastream. For each sport club we have used historical daily time series stock data with time period from the date of the IPO and five years forward. We decided on this time period as to incorporate the performance of the clubs directly after an IPO has been conducted and which has been discussed by Ritter (1991) and in earlier sections as a suitable time period. This particu-lar time series data will assist us in determining if there is long term over-/underperformance, along with looking at specifically dated events and how they have affected the stock price. It will assist us in determining the alpha and beta when bench-marked against the market and also in conducting studies regarding cumulative abnor-mal returns.

Historical Market Prices

To give us an insight of how each individual stock has performed we obtained market prices that will be used as a benchmark. To give more accurate and precise results, we used the index each stock was listed on as the benchmark for that stock, also known as the expected return of an investment. Similar to the individual stock prices we obtained historical daily time series stock data with the same time period as the individual stock, from the date when it was listed and five years forward. This allowed us to compare the daily continuous returns precisely to the date allowing for us to make further calcula-tions with regards to excess and abnormal returns.

 STOXX Data

The STOXX index compiled of 22 different football clubs (STOXX.com, 2015) and its historical prices were available from their database online providing us with the daily price movements since the introduction of the index in the end of 1991. We used loga-rithmic returns to calculate the returns of the index.

 IPO Data

There was some difficulty in obtaining the IPO data due the variety of databases to search through and a lack of accessibility regarding IPO data within the databases. Some financial information about the IPOs was difficult to obtain due to restrictions on privacy out with the countries in question. We were able to obtain nine different clubs’ full IPO data. Having such a small sample will not be of any use in a statistical test. We then decided to only calculate the first day’s initial discrete return by putting the differ-ence of the first day’s closing price and the IPO price in relation to the IPO price. After computing this for all nine clubs in the sample we found the mean of the sample. This data will be assessed later on in the analysis were the sample and its components will be further discussed in the light of under-/ overpricing.

 Risk Free Rate

For us to perform calculations regarding excess return of both the stock and the market we were required to obtain a risk free rate as to find the market risk premium. We ob-tained historical time series data of ten year governmental bonds from Datastream with regard to the country in which the football clubs are located in or with regard to the ex-change they are listed on. These governmental bonds accurately measure the risk-free rate of each particular country. We matched the risk free rates with the daily data and dates used for the individual stock returns as to find the precise risk free rate at that point in time. As mentioned in the delimitations section, we refrained from using the Turkish football clubs as the risk free rate was not viable and affected the overall con-clusion of our work.

 Excess Return

Excess return is when the returns found from the changes in stock price are adjusted for risk using the risk free rate obtained in the previous section. The risk free rate shows how much an investor can earn on their capital without taking any risk and in theory simply keeping their capital in the bank. By removing this risk we find the return earned above this amount. We simply calculated by subtracting the daily risk free rate (com-pounded on a daily basis) from the actual returns to in turn create an excess return on both the stock and the market.

Results and Analysis

This section will build on the data section above and will introduce the reader to our results, followed by our analysis of our findings, and how they relate to our specific research questions. The analysis section will lead us to be able to conduct a viable conclusion.

Jensen’s Alpha

Jensen’s Alpha can be calculated in a variety of different ways. In our case, we run a re-gression on the time series data with the dependent variable being the excess return of the stock price and the independent variable being the excess return of the market. The alpha in this case is the intercept of the regression analysis and explains whether the particular stock is “beating” the market after adjusting for risk (Damodaran 2012). Shown below is the alphas obtained for each of the individual football clubs we have obtained time series data for (Table 6-1.1).

1 Introduction
1.1 Background
1.2 Focus of Study
1.3 Problem Discussion
1.4 Purpose
1.5 Earlier Research
1.6 Delimitations
2 Frame of Reference
2.1 Underpricing/Overpricing
2.2 Profit-Maximizers vs Win-Maximizers
2.3 Long-Run Performance after IPO
3 Method
3.1 Methodology
3.2 Method
3.3 Quality Assurance
4 Collection of Data
4.1 Time Series Data
4.2 IPO Data
4.3 Risk Free Rate
5 Results and Analysis
5.1 Jensen’s Alpha
5.2 Cumulative Abnormal Returns
5.3 Beta
5.4 STOXX Index for bundle of Football Clubs
5.5 IPO vs. Seasoned Stocks Performance
5.6 IPO Data
6 Conclusion
7 Further Research
8 References
9 Appendix
9.1 Rise in TV Contracts Premier League
9.2 Football Clubs included in Sample
9.3 Underpricing (in percentage) Country by Country
9.4 Entities Included in STOXX index
9.5 Alpha Movements for Individual Football Clubs
9.6 Result Table for Alpha Calculations
9.7 Alpha Return Monthly
9.8 CAR Movements Yearly for Individual Clubs
9.9 Average CAR Daily Development
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