What explains the initial return of initial public offerings after the 1997 Asian financial crisis? Evidence from Thailand

• A sample of 187 IPOs in Thailand between 2000 and 2012 is examined.
• Stock market development has a positive effect on the initial return of IPOs.
• Bond market development has a negative effect on the initial return.
• When interest-rate differentials are positive, they have a positive effect on the initial return.

Do financial development, domestic interest rates, and interest-rate differentials simultaneously affect the underpricing of initial public offerings (IPOs) in emerging market countries? Using a sample of 187 IPOs in Thailand between 2000 and 2012, I show that financial development, stock market conditions, bond market development, and interest-rate differentials affect the initial return, and that several of these effects appear to be contingent on (1) whether the IPOs are hot or cold and (2) whether the interest-rate differential is positive or not. During periods of positive interest-rate differentials, the effect of the interest-rate differential on the initial return is positive and economically significant. Overall, my findings suggest that investors might undertake carry-trade strategies in the IPO market. In addition, the initial return of the IPOs in my sample appears to be lower than the initial returns reported by previous studies using the pre-1997 financial crisis period sample.