MPF753 – Finance: Assignment 2 – Trimester 1, 2016

MPF753 – Finance: Assignment 2 – Trimester 1, 2016General Information
1. This assignment makes up 30% of your total assessment in this unit.
2. Due Date: Monday, 2 May 2016 (Week 8), no later than 5:59 pm (AEST). A request for a
time extension must be made in writing to the Unit Chair, Dr Mong Shan Ee
(mong.e@deakin.edu.au) at least one day before the due date. This request must include
documentary evidence, such as medical certificate.
Please note: since students will have several weeks to complete this assignment and are
expected to make good use of this time, being unfit on the due date or just one or two
days prior to the due date, may not be an acceptable ground to get an extension.
Assignments submitted after the deadline without an extension approved by the Unit
Chair will not be marked.
3. This assignment must be completed in a group of two (or individually, if prior permission
has been obtained from the Unit Chair).
• Please note that If you are a student enrolling in MBA and related courses (M701,
M601, M501, D713, M708, M741, M701V, D701, D704, D720), please pair up with
another student enrolling in the courses listed above.
• For students in ALL OTHER COURSES (e.g., MBA(I), MCom, MPA, etc), please pair up
with another student enrolling in ALL OTHER COURSES except those listed above.
• The rationale for the separate group pair up for MBA students is that they have
considerable managerial work experience and, therefore, their learning experience is
different. Hence, the MBA course team has determined that the MBA student cohort
should work together in student groups. Students in ALL OTHER COURSES can work in
groups across courses.
MPF953 students must make an individual submission. For all students, the first page of
your assignment report must clearly show the full names and student ID numbers of both
group members.
4. The word limit is 2,500 words (excluding tables, figures, appendices and reference list).
5. Marked assignments and feedback will be returned within 15 working days (23 May 2016)
of the due date or extended due date of the assignment if an extension was granted.
Assignment Submission via the MPF753 CloudDeakin site
1. Your assignment must be submitted via the MPF753 CloudDeakin site.
Please DO NOT submit your assignment by email or send us a hard copy under any
circumstances.
2. Please sign-up to a group via CloudDeakin from 18 April 2016 to 27 April 2016, 5:59pm
(AEST). Please click on the “More” tab and then select “Groups”. If you are an MBA
student, please select “Cluster A, MBA only” to sign-up to a group. For students in ALL
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other courses, e.g., MBA(I), MCom, etc. please select “Cluster B, ALL OTHER COURSES” to
sign-up to a group. You can register as a group of 1 or 2 students. Marks may be deducted
if you fail to register by 27 April 2016, 6pm.
3. Make sure you and your group partner register correctly. If you make a mistake or wish to
change the group, then please email the details (e.g., name, student ID number, wrongly
registered group number) to Dr Mong Shan Ee (mong.e@deakin.edu.au).
4. Do not join someone’s group unless you have prior permission to do so. You will be
removed from a group at the request of the other student!
How to submit your file
1. Name your Microsoft (MS) Word document using your student number(s). For example,
1234566.doc or – if your group has two members – 1234508_1234509.doc
2. Submit your assignment as a SINGLE MS Word document only (no PDFs or other file
formats). Workings in Excel must be embedded into the word file (‘embedded’ means
the marker can click on your table, which will then open in Excel, so we can check your
workings). Do not submit separate files.
3. You must use the Harvard style of referencing style, as set out in the Deakin guide to
Harvard referencing, and include a comprehensive list of references for both your data
sources and in-text citations.
4. There is no official assignment cover sheet. Before submitting your assignment report,
read the plagiarism and collusion declaration section in the assignment submission
dropbox.
5. All submissions will be checked for potential plagiarism using Turnitin© software. If
plagiarism is suspected, the assignment will automatically be referred to the Faculty’s
Academic Progress Committee. Turnitin: once you upload your paper as a submission, you
can access the originality report. Use the feedback to revise and improve your document.
You can still make changes to the document, as the dropbox accepts further submissions
until the due date (each attempt overrides previous attempts).
6. When you make the submission of Assignment 2 report at CloudDeakin, you will be asked
to confirm the following declaration relating to academic honesty:
“By clicking the SUBMIT button above or below, you are declaring that the attached work
is entirely your own (or where submitted to meet the requirements of an approved group
assignment, is the work of the group), except where material quoted or paraphrased is
acknowledged in the text. You are also declaring that it has not been submitted for
assessment in any unit or course.”
Deakin Graduate Learning Outcomes (GLOs)
1. Discipline-specific knowledge and capabilities (GLO 1): appropriate to the level of study
related to a discipline or profession.
2. Digital literacy (GLO 3): using technologies to find, use and disseminate information.
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Case study – IPO Under-Pricing (30 marks: 13 + 5 + 10 + 2)
A written report of 2,500 words max. (excluding tables, figures and references)
Background
The following is an excerpt from the Deloitte 2015 IPO market update (Deloitte 2015, p. 4):
Despite the recent turbulence in global markets, there have been a total of 48 listings
(36 in 2014) up to the date of this report, raising $4.4bn and representing a total
market capitalisation of $8.4bn. Technology and financial services listings continue to
drive investor appetite and represent 50% of all 2015 listings.
The IPO market continues to significantly outperform the ASX 200, demonstrated
further by strong growth of stocks including Eclipx (34.8%) and the recent listing of
Pepper Group (29.2%), amongst others.
Of the 48 listings in 2015, 21 had a market capitalisation in excess of $75m,
generating an average share price performance gain of 7.2%. In comparison, the ASX
200 has continued to be subject to market volatility on the back of international
uncertainty, dropping 4.1% over the period to 21 August 2015.
Questions
Inspired by 2015 IPOs performance, Jason Ryder, the CEO of Dynamic Mining, a gold private
exploration and mining company, is planning to raise equity through an initial public offering.
Jason is going to propose the plan to the company’s major shareholders, but worries about
resistance from some of the shareholders, who are known to be conservative. He remembered
from his MBA finance course that many IPOs in the US were issued at prices substantially below
the first-day closing market prices. However, he was not sure whether the short-run IPO underpricing
phenomenon exists in the Australian stock market. Jason asks you, the Chief Financial
Analyst (CFA), to investigate and prepare a report on the following issues.
1. Calculate initial return, analyse and interpret the Australian IPO market
Short-run IPO under-pricing is a well-known phenomenon in the US stock market. But is this
phenomenon unique to US IPO firms only? In other words, does this phenomenon perhaps also
exist in the Australian stock market? To answer this question, you need to investigate the shortrun
IPO performance in the Australia stock market. To measure the short-run IPO performance,
you will have to calculate and analyse the initial return of IPOs that were listed on the Australian
Securities Exchange (ASX) from 1 September 2013 to 31 December 2013. The initial return
(Ritter 1991, p. 7) equals:
[(The first trading day closing price – issue price) / issue price] * 100.
Download the list of IPO firms with their issue price and the first trading day closing price from
Morningstar DatAnalysis Premium. Remove those IPOs without issue price in the spreadsheet
downloaded from DatAnalysis. Also, make sure you select the adjusted price for the closing
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price. Describe the sample selection process. You should list any assumptions made during the
sample selection process.
Critically analyse the results of your calculation using the entire sample and describe the insights
that could be gained from the calculation. For instance, you should describe the results of the
analysis using simple descriptive statistics, such as mean, median, minimum, maximum, etc., or
the frequency distribution.
Next, categorise your data/calculations into groups using two variables (e.g., industry sector)
and describe what additional insights you could gain from the analysis. You will decide which
grouping variables you will use and provide justification(s) for your selection. You should also list
any assumptions made in the analysis.
Wherever appropriate, the summary of your analysis and/or results (e.g., in a brief table, chart
or graph) should be presented in the main text of your report. However, the data, detailed
calculation/analysis and results should be presented in the Excel spreadsheet, which must be
embedded in the Appendix section of your report. Note that 1 mark is allocated for organising
and presenting the calculation/analysis and results in the embedded Excel Spreadsheet and
report. In addition, you must properly reference (Harvard style) all sources of information used.
(13 marks)
2. Describe a reason for short-run IPO under-pricing
Select and discuss one theory/proposition that in your opinion provides the most plausible
explanation for the occurrence of short-run IPO under-pricing in the US and/or Australian stock
market. Perform some background research and use the findings to justify your selection. You
are expected to use at least two academic references for this task. You may use articles from
academic journals or textbooks, but not Wikipedia, Investopedia or other non-academic
Internet websites. You must properly reference (Harvard style) all sources of information used.
(5 marks)
3. Describe and discuss a study investigating the short-run IPO under-pricing in an emerging
market
Pick one stock market from the selected emerging markets1
. Perform some background
research and then describe one study that empirically investigates the existence of short-term
IPO under-pricing in the stock market you have chosen. To answer this question, you are
expected to describe the study (including the research methodology used to examine the
existence of short-term IPO under-pricing and the factors explaining the degree of under-pricing
in the selected stock market) and the empirical results on the degree and factors explaining the
short-term IPO under-pricing, and discuss the reason(s) proposed by the study to explain the
existence of IPO under-pricing in relation to the theory discussed in Question (2). In attempting
this task, you are expected to use at least three academic references. You may use articles
1 The selected emerging markets are Argentina, Bangladesh, Brazil, Chile, Egypt, India, Indonesia,
Malaysia, Pakistan, Philippines, South Africa, South Korea, Taiwan, Thailand, Turkey, and Vietnam.
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from academic journals or textbooks, but not Wikipedia, Investopedia or other non-academic
Internet websites. You must properly reference (Harvard style) all sources of information used.
(10 marks)
4. Please note: 2 marks are allocated for referencing. (2 marks)
(13 + 5 + 10 + 2 = 30 marks)
Useful resources and referencing
You should read and understand Chapters 5 and 12 of your textbook and Topic 3 lecture slides.
You are expected to do research outside of your lecture time, using library/online sources,
process the information gathered, and write an organised, well-thought-out response to the
assignment questions. Here are some useful resources:
1. ASX 2014, IPO the road to growth and opportunity, retrieved 25 January 2016,
<http://www.asx.com.au/documents/products/ASX_IPO_Brochure.pdf>.
2. Deloitte 2015, Deloitte 2015 IPO report, retrieved 25 January 2016,
<http://www2.deloitte.com/au/en/pages/finance/articles/deloitte-2015-iporeport.html?utm_source=social&utm_medium=social&utm_campaign=sl_fas_2015_ipo_r
eport_15_03_10>.
3. Ritter, JR 1991, ‘The long-run performance of initial public offerings’, The Journal of
Finance, vol. 46, no. 1, pp. 3–27.
4. Chapters 2 and 3 from: Black, K 2011, Business statistics: for contemporary decision
making, 8th edn, John Wiley, Hoboken. Available as a Deakin University Library e-book.
A number of resources relevant to Assignment 2 can be found on Library Resources Guides
website (http://deakin.libguides.com/content.php?pid=5288&sid=3586901) and the Padlet
website (http://padlet.com/buslaw221/mpf753) developed specifically for MPF753 Finance.
The list of IPO firms, initial offering price, historical closing prices, and all other relevant financial
information should be obtained from Morningstar DatAnalysis Premium – a library database
that can be accessed via the Deakin Library website. Instructions on how to obtain the
information from DatAnalysis are given in a separate instruction document and short video
clips (posted on the MPF753 Finance Library Resources Guide and MPF753 Padlet website),
and will be discussed during the Week 3 Lecture (will be recorded). You are strongly advised
to attend (watch/listen) that lecture (recorded lecture and video clips) before you start to
work on your assignment. In your report, embed the Excel spreadsheet containing the data you
will use for the calculations.
Good referencing and carefully checking all your references are important. Make sure you leave
enough time to do this. For this assignment, you must use the Harvard referencing style, as
described in the Deakin guide to referencing. Click on the ‘Harvard’ tile’, top left, to access the
Harvard guide online or download a PDF copy. The Deakin guide to referencing also provides
useful information on academic integrity, general referencing principles and how to integrate
your sources into your writing through summarising, paraphrasing, etc.
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Department of Finance
MPF753 – Finance: Assignment 2 – Trimester 1, 2016
Step-by-step instructions to access the data for Assignment 2
This document contains step-by-step instructions on how to download the required data from
DatAnalysis Premium. Please read this document carefully and watch the video clips before
attempting to download the data.
How to access DatAnalysis Premium from the Deakin Library webpage:
Step 1: Open the Deakin University Library website: www.deakin.edu.au/library.
Step 2: Click on ‘Options’ and select ‘A-Z databases’.
Step 3: Enter ‘DatAnalysis Premium’ into the search box. Your search should return a weblink:
DatAnalysis Premium.
Step 4: Click on the DatAnalysis Premium weblink. This should take you to the DatAnalysis access
page.
NOTE: DatAnalysis access will open in a new window, so make sure your browser allows pop-ups.
If you are accessing this resource from an external computer, you may be asked for your Deakin
username and password (the one you use to log into DeakinSync).
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How to download the list of IPO firms from DatAnalysis Premium
Step 1: Once you are on the Morningstar Datanalysis Premium webpage, click on ‘Search tool’. Then
select ‘Advanced search’.
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Step 2: In Section A, select ‘Listed Companies only’. In Section B, select ‘Company history & listing
details’ from the dropdown menu by clicking the box under ‘1. Section’.
Step 3: From the dropdown menu for ‘2. Sub-section’, select ‘ASX listing date’.
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Step 4: Select ‘Between’ for ‘3. Option’. Next, enter ‘20130901,20131231’ for ‘4. term(s) and value’.
Then press ‘Add Query’.
Step 5: You will see the query criteria in the box in Section C. Press the ‘Search’ button.
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Step 6: On the search results page, you will see a list of all the IPO firms from 1 September 2013 to
31 December 2013. Click ‘All’ and then ‘Download Spreadsheet’ to get the data into MS Excel.
How to get additional data about an IPO firm using DatAnalysis Premium
Suppose you want the issue price and industry sector (use GICS sector).
Step 1: Click on ‘Edit Search’ in the Search Results page to return to the ‘Advanced search’ page. In
Section B, select ‘Company history & listing details’ from the dropdown menu by clicking the box
under ‘1. Section’. Next, select ‘Issue price’ for ‘2. Sub-section’ & ‘Display only’ for ‘3. Option’, press
‘add query’. These search criteria will be added to the box in Section C.
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Step 2: Select ‘Corporate Details’ for ‘1. Section’, then ‘GICS Sector’ for ‘2. Sub-section’, and ‘Display
only’ for ‘3. Option’. Now, press ‘Add query’. These search criteria will be added to the box in Section
C. Press the ‘Search’ button to get the search results.
Step 3: On the search results page, you will see a list of all the IPO firms from 1 September 2013 to
31 December 2013 with additional company information. Please click on ‘All’ and then ‘Download
Spreadsheet’ to get the data into MS Excel.
How to download the adjusted closing share prices using DatAnalysis Premium
Step 1: Please click on the name of a chosen company in the list of IPO firms in the ‘Search Results’
page. For example, if you click on ‘Dome Gold Mines Limited’, you would get the following:
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Step 2: To get to the share price history of your chosen company, click on ‘Price History’ in the lefthand
panel. The listing date of the firm is displayed below the firm name.
Step 3: On the price history page, please select ‘Daily’. Then enter the appropriate start and end
dates. You can enter the listing date of the firm as displayed below the firm name. Next, select
‘Adjusted price’ and click on ‘Run Query’ to get the adjusted price in the ‘Close’ column. (You need
to get the closing price for each of the sampled companies manually, one by one).
NOTE: The adjusted price in the ‘Close’ column on the listing date is the first trading day closing price
for the IPO firms, if there is trading volume in the ‘Volume’ column on the listing date.
However, for some IPO firms, there might not be any trading volume on the listing date (where you
see a ‘—‘ or ‘0’ in the ‘Volume’ column or there is no price history at all on the listing date). This
happens because the listing of shares for the firm could have been delayed. If this is the case, then
pick the first available ‘Close’ price of the day after the listing date with trading volume as the closing
price for this firm.
For example, in the case of Dome Gold Mines Limited, there was no trading volume on the listing
date (22 Oct 2013), the first day with trading volume (10,000) was 25 Oct 2013 and the ‘Close’ price
on 25 Oct 2013 was $0.210. Thus, the first trading day closing price for Dome Gold Mines Limited
was $0.210.
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Sample period: Jan – Dec 2010 This is an example.
Question 1
ASX Code Status ASX Listing Date Issue Price Initial return GICS Sectors Industry classification X grouping variable X variable classification
ABC Trading 12/9/2010 1.00 0.05 Consumer Discretionary 1 0.2 1
EFG Trading 11/11/2010 0.60 0.08 Consumer Discretionary 1 0.3 1
CDE Trading 1/18/2010 0.20 0.07 Consumer Discretionary 1 0.25 1
DFF Trading 6/24/2010 1.85 0.065 Consumer Discretionary 1 0.62 2
SHE Trading 5/15/2010 1.00 0.072 Consumer Discretionary 1 0.55 2
SLE Trading 10/16/2010 1.10 0.082 Consumer Discretionary 1 0.85 2
VET Trading 12/9/2010 1.89 0.085 Consumer Discretionary 1 1.1 3
EEQ Trading 10/11/2010 1.60 0.12 Financials 2 1.5 3
NGG Trading 2/26/2010 1.00 0.14 Financials 2 0.34 1
BEO Trading 10/11/2010 2.00 0.16 Financials 2 0.33 1
PGG Trading 12/12/2010 1.00 0.18 Financials 2 0.16 1
SSC Trading 12/23/2010 1.00 0.15 Financials 2 1.2 3
CME Trading 1/4/2010 0.20 0.09 Energy 3 0.35 1
ENN Trading 12/20/2010 0.20 0.12 Energy 3 0.46 1
IIP Trading 4/30/2010 0.50 0.1 Energy 3 0.55 2
LAN Trading 4/30/2010 0.85 0.11 Energy 3 0.67 2
MBD Trading 3/28/2010 1.00 0.14 Energy 3 0.74 2
PED Trading 2/28/2010 0.20 0.13 Energy 3 0.88 2
RLF Trading 12/12/2010 0.25 0.2 Energy 3 0.92 2
TOK Trading 4/9/2010 0.50 0.08 Energy 3 1.15 3
ZEL Trading 1/21/2010 0.20 0.15 Energy 3 1.25 3
ZND Trading 8/19/2010 3.75 0.16 Energy 3 1.34 3
AME Trading 11/16/2010 0.20 0.2 Materials 4 0.15 1
AQY Trading 9/19/2010 0.20 0.16 Materials 4 1.5 3
ATT Trading 7/24/2010 0.20 0.15 Materials 4 1.22 3
BOE Trading 10/11/2010 0.20 0.21 Materials 4 0.58 2
CLN Trading 5/24/2010 0.20 0.17 Materials 4 0.69 2
DDN Trading 11/14/2010 0.50 0.26 Materials 4 0.78 2
DMF Trading 10/22/2010 0.20 0.25 Materials 4 0.82 2

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