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The Performance of Initial Public Offerings in an Emerging Market: The Case of the Istanbul Stock Exchange

This study uses the Markov chain model to examine the behavior of 189 initial public offerings on the Istanbul Stock Exchange (ISE) over the 1990-1999 periods. The non-linear estimation results suggest that Turkish IPOs do not follow a random walk but may instead follow a first-order Markov chain process. It may be possible to predict excess returns conditioned on the observation of the returns in the previous period. Furthermore, the findings are particularly interesting because, unlike what is found for most other markets; IPOs on the ISE over perform the market several years beyond when firms go public. The results add to our understanding of the behavior of equities in emerging markets.