The annualised average return on a market-weighted portfolio of small- and micro-cap IPOs was 18.62 per cent.ДЇor large IPOs, the weighted average return was just 2.28 per cent. This matched the вЂbacktestingвЂ™ methodology adopted by many ASX investors. The study used a вЂdynamic rebalancingвЂ™ approach, where profits were taken on successful IPOs to fund investments in new IPOs. There was an even bigger differential for buy-and-hold investors, who invested in every new IPO on the day of listing and held their shares right through to Decem(or until the date of delisting). Investors who did the same for every large IPO would have achieved a much smaller stag profit of 7.88 per cent. Ms Gilbey carved up her analysis to capture two types of return: the вЂstagвЂ™ profit on the first day of listing and the long-term buy-and-hold return.ДЄn investor who was able to buy into every small- and micro-cap IPO on the ASX at the issue price and sell the shares after the price вЂpopвЂ™ on the first day of trade would have made a 19.45 per cent average one-day gain. This was particularly important, as 63 per cent of the companies in the survey ended up delisting during the 20-year period. The inclusion of delisted IPOs in the analysis had a major impact it greatly boosted returns, defying the perception that a delisting equates to a failure. The researchers found that returns from small- and micro-cap IPOs have on average been much stronger than for large-cap IPOs. The results are stark and very positive for Western Australia. She believes itвЂ™s the first study to directly compare the long-term returns from all stocks: from those with a large market capitalisation on listing (above $700 million) through to small and micro-cap stocks (valued at less than $75 million). With guidance from co-authors Sharon Purchase at UWA Business School and Terry Marsh at the University of California Berkeley Haas, Ms Gilbey has analysed the returns from every IPO on the ASX between Januand December 31 2019. Ms Gilbey, who is working towards a PhD at the University of Western Australia, has undertaken an ambitious research project to fill the data gap.

The research is also limited to relatively short periods, typically three to five years. The existing research is usually restricted to companies that are still listed, with any delisted stock assumed to be a failure. In the US market, IPOs that issue shares at less than $5 are considered вЂpennyвЂ™ stocks under the Penny Stock Reform Act of 1990 and are therefore speculative. Most of the research comes out of the US and only looks at large initial public offerings (IPOs).

Kylie Gilbey discovered some huge gaps when she started researching the returns from stock market listings.

Publically listed micro cap stocks