Initial public offerings of country funds: evidence and implications

Abstract

We document initial returns to offerings of country funds in U.S. markets and attempt to explain cross-sectional variation in returns with a variety of factors. We find that initial returns are strongly related to issue size and the subsequent premium (or discount) relative to the net asset value. There is only weak evidence that initial returns, aftermarket or price to net asset value ratios reflect the potential diversification benefit the fund offers. There is also evidence that aftermarket returns may be poor for very large issues and that aftermarket returns are stongly influenced by U.S. stock market returns. Our evidence casts doubt on the presumption that these funds are an efficient means with which to diversify a portfolio.