How has the Icelandic stock market responded to initial public offerings over the past decade?

Abstract

This thesis investigates how initial public offerings reshape prices and liquidity on the Icelandicstock exchange, a micro-market dominated by retail investors and characterized by thin, episodictrading. Using the seven domestic IPOs floated between 2015 and 2022, including the listings ofÍslandsbanki (2021) and Nova (2023), the study applies an event-study design, cross-sectionalregressions, paired t-tests and graphical analysis of normalised price paths. Four hypothesesderived from mainstream IPO theory are evaluated.Taken together, the findings show that classical IPO procedures do operate in Iceland, buttheir magnitude and direction are mediated by market size, regulatory design and informationstructure. Retail investors receiving shares for political reasons helped reduce underpricing.Limited media coverage kept attention from spreading widely to other stocks. Large IPOstemporarily pulled money away from the rest of the market. On the technical side, this thesis showshow event-study methods can be adjusted for smaller Nordic markets by aligning timelines andusing bootstrapped standard errors. Overall, the thesis shows that the effects seen in large, liquidmarkets do not automatically apply to smaller exchanges without making important adjustments.