The Underperformance of the Growth Enterprise Market in Hong Kong

This paper examines the stock return performance of the IPO stocks which are listed on the Growth Enterprise Market (GEM) in Hong Kong. By using several benchmarks, over 3 years, this paper finds that the results produced are sensitive to the benchmark employed. The two factors causing the underperformance of GEM stocks are the 'technology boom' and 'IPO effects'. This suggests that appropriate benchmarks are very important for assessing the performance of newly issued stocks. The results of the cross-sectional analyses suggest that the Hong Kong GEM is a unique market. Since at least 70 percent of the IPO stocks listed on the GEM are technology stocks, the 'technology' factor outweighs the various hypotheses advocated by previous researchers to explain the poor performance of newly listed stocks.