The goal of this study is to explore the existence of two phenomena in Japanese stock markets.  One is short-run Initial Public Offering (IPO) underpricing which refers to a phenomenon that occurs when firms go public by issuing new stocks and the offer prices of the stocks are somehow underpriced, no matter how good the future prospects of the firms are (Rock, 1986).  The other is long-run IPO underperformance which refers to a phenomenon that occurs when IPO stocks underperform in the long-run compared to other non-IPO stocks that have been traded in the market for a long time.

Our samples are 184 IPO firms that went public on stock exchange markets in Japan during the period from 2004 to 2011, in order to investigate the existence of these phenomena in the Japanese market. The sample IPO firms are listed on the following stock exchange markets within TOPIX, TSE-2ND, and MOTHERS in the Tokyo Stock Exchange.

This study revealed the existence of the phenomena in the Japanese market. The results will answer whether market efficiency holds well in the Japanese stock exchange markets in the short- and long-run.