This study examines the relation between the offer price adjustment, initial return,
and subsequent short-run performance for a sample of initial public offerings (IPO's)
made by US industrial companies from 1986 to 1996. The IPO's are divided into three
categories (cold, cool, and hot issues) based on the offer price relative to the
suggested price range revealed in the preliminary prospectus. It is found that the
offer price adjustment not only predicts the first-day return, but also predicts
subsequent short-run performance in the same direction up to three months after issuance.
Moreover, different types of IPO's demonstrate distinct cross-sectional behavior
in multivariate regressions of initial returns. Our results suggest that cold IPO's
are quite unique and deserve more attention in future studies.