Asia Pacific Management Review 26 (2021) 1e10

H O S T E D BY Contents lists available at ScienceDirect

Asia Pacific Management Review

journal homepage: www.elsevier.com/locate/apmrv

Initial coin offerings and their initial returns

Hui-Ching Hsieh*, Jonas Oppermann
Institute of International Management, National Cheng Kung University, Tainan City, 701, Taiwan

a r t i c l e i n f o a b s t r a c t

Article history: We empirically examine the initial returns of Initial Coin Offerings (ICOs) and show that ICO underpricing
Received 25 February 2020 is enormous, which implies that cryptocurrency markets are inefficient. Moreover, we find that having a
Received in revised form short offering phase, not holding a presale, a precisely written whitepaper, and the creation of an in-
16 May 2020
dependent blockchain all have a positive impact on ICOs’ initial returns. Our results also suggest that the
Accepted 21 May 2020
driving factor behind initial returns is the movement of the cryptocurrency markets, measured by both
Available online 23 August 2020
Bitcoin and Ethereum returns. In addition, whether or not the jurisdiction has cryptocurrency regulations
is an influential indicator. ICOs that belong to the high-tech services and platform industries have higher
JEL classification:
G24
initial returns. Conventional financial assets, such as the stock market and gold, have a positive influence
M13 on ICOs’ initial returns.
O33 © 2020 The Authors. Published by Elsevier B.V. on behalf of College of Management, National Cheng Kung
University.
Keywords:
Initial coin offerings
Cryptocurrencies
Blockchain
Initial returns
Underpricing

1. Introduction
Cryptocurrencies have gained much attention recently as their
total market capitalization increased from $18 billion in January
2017 to over $800 billion just one year later. The most compelling
phenomenon to have emerged from the cryptocurrency environ-
ment is the Initial Coin Offering (ICO). While initially only a few
ICOs were undertaken, the pace picked up in 2016 and accelerated
greatly in the second half of 2017. Moreover, despite the bear
market for the overall cryptocurrency environment in 2018, the
number of ICOs and the amount of funds raised surpassed the totals
for the whole of 2017 within the first half of 2018.
An ICO provides a new way for entrepreneurs to raise money for
a startup by selling their own cryptocurrency to investors. A
blockchain project can be launched and the investors will then
receive a stake in the project’s success, through the cryptocurrency.
This is similar to crowdfunding in two aspects: both require a
minimum funding threshold to be reached; and both are in a way
* Corresponding author.
E-mail address: sana@mail.ncku.edu.tw (H.-C. Hsieh).
Peer review under responsibility of College of Management, National Cheng
Kung University.
engaged in testing the market demand for their product (Cerezo

nchez, 2017). Most ICOs have the goal of developing an online
Sa
platform on which the cryptocurrency can later be used to purchase
products or services (Catalini & Gans, 2018). They might also pro-
vide specific benefits, such as price reductions once the product is
launched, or voting rights in business decisions, as well as partici-
pation in the development of the platform itself. Since crypto-
currencies and blockchain technology have only recently started to
attract major public attention, most literature on cryptocurrencies
has focused on Bitcoin and some of the other early altcoins (Corbet,
Lucey, Urquhart, & Yarovaya, 2019). The literature relevant to ICOs is
still very limited. For example, Adhami, Giudici, and Martinazzi
(2018) examined the specific characteristics of an ICO that deter-
mine success. Fisch (2019) analyzed the factors that determine the
amount raised. All these previous studies focused on aspects of the
venture, i.e., factors contributing to the raising of funds, while
investigation into the aspects of the investors, i.e., the returns when
investing in an ICO, is still limited.
The key characteristic setting ICOs apart from crowdfunding
projects is that cryptocurrencies can be traded on a secondary
market and therefore allow for financial speculation. After an ICO,
the price of the cryptocurrency fluctuates according to supply and
demand in the market, and is not controlled by the entrepreneur
(Cerezo Sa
nchez, 2017). ICOs are similar to Initial Public Offerings

https://doi.org/10.1016/j.apmrv.2020.05.003
1029-3132/© 2020 The Authors. Published by Elsevier B.V. on behalf of College of Management, National Cheng Kung University.
2 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10
(IPOs) in the sense that they can be seen as a way of buying a share
of a fixed outstanding number of units in order to be part of a
business and benefit from its success. One of the most striking
phenomena of IPOs is their underpricing, i.e., that the issuing
company leaves money on the table while the investors earn high
initial returns, which has attracted much interest over the years and
appeared globally (Lin, Pukthuanthong, & Walker, 2013; Ritter &
Welch, 2002).
The most prominent theories of underpricing include informa-
tion asymmetry and the behavioral finance theory, which suggests
underpricing is due to overoptimistic sentiment investors (Derrien,
2005; Cornelli, Goldreich, & Ljungqvist, 2006; Ljungqvist, Nanda, &
Singh, 2006). Since the value of an ICO is even more uncertain than
that of an IPO, which is regulated by government and for which
reliable financial information is available, the information asym-
metry in ICOs could be much higher. In addition, Dyhrberg, Foley,
and Svec (2018) suggested that most trades in the Bitcoin market
are executed by retail investors. Because retail investors are more
sentimental than institutional investors (Clarke, Khurshed, Pande,
& Singh, 2016; Cornelli et al., 2006), the underpricing of ICOs is
excepted to be larger than that of IPOs, according to behavioral
finance theory.
The emergence of ICOs based on blockchain technology is a new
phenomenon and, because they have caught the attention of the
finance field, represent a very interesting topic to explore and
examine. Since such a way of funding projects has not existed
before, it also brings a totally new set of opportunities as well as
risks for investors. Therefore, focusing on the aspects of ICO in-
vestment, we investigate ICO underpricing by analyzing ICOs’ initial
returns across a wide cross-section of cryptocurrencies. This
research aims to fill the gap regarding the valuation of crypto-
currencies sold in ICOs, the determinants of initial returns, and how
those determinants influence the potential success of the invest-
ment. We investigate how ICO characteristics, cryptocurrency
markets, the jurisdictions, the ICO industry and conventional
financial markets affect the initial returns of ICOs. According to
Zheng and Stangeland (2007), it is found that IPO underpricing is
positively related to future firm growth, which implies that IPOs
with greater underpricing have higher quality. Thus, underpricing
is used by better-quality firms to signal their prospects to capital
market participants (Allen & Faulhaber, 1989; Denning, Ferris, &
Wolfe, 1992). Therefore, the objective of this paper is not only to
provide investors with more knowledge of the factors that might
affect the success of investments in ICOs, but also to help investors
find the higher-quality cryptocurrencies. On the other hand, by
understanding the determinants of ICO underpricing, issuers of
ICOs can enhance the firm’s quality to achieve greater underpricing,
which can signal to capital market participants that the firm has
favorable prospects.
2. Literature review
2.1. Initial coin offerings
Most literature on cryptocurrency has focused on Bitcoin and
some of the other early altcoins. Adhami et al. (2018) conducted the
first study in the financial literature examining the specific char-
acteristics of an ICO. They analyzed the variables that might
determine the success of an ICO. In their study, being a successful
ICO was determined by whether the minimum funding goal was
achieved. Their main findings were that, while the existence of a
whitepaper seems not to have an important influence on success,
the disclosure of the underlying code, and presales, do have a sig-
nificant positive influence. Additionally, they argued that neither
bonus schemes offered by the project nor the performance of the
underlying platform (e.g. Ethereum, Waves, EOS etc.) seemed to be
important for investors.
Fisch (2019) examined the amount raised during the ICO as the
dependent variable. The results indicated that being based in the
US seemed to be a factor in receiving a high amount of funding. Like
Adhami et al. (2018), they also found that the mere existence of a
whitepaper has little influence on the funding. The other main
factors that seem to have a positive influence on the funding
amount are having a short ICO duration and being a token based on
the Ethereum blockchain. Howell, Niessner, and Yermack (2018)
looked at the liquidity and trading volume as indicators of
whether an ICO project was successful. Their study relied on the
signaling theory and they argued that one of the major advantages
ICOs provide over traditional methods of fundraising is rapid
liquidity to investors, since most tokens are quickly tradeable at an
exchange.
To understand the valuation of ICOs it is also important to look
at the purposes of the investors who are interested in contributing
to such ventures. In a study in which ICO investors were surveyed,
Fisch, Masiaka, Vismarac, and Blocka (2018) found that investors
are not only driven by the potential gain of value, but that ideo-
logical and technical motives also play a crucial role in investment
in an ICO. Expectedly, the responses suggested that the ICO in-
vestors generally had a strong risk appetite and often had a tech-
nological or financial background. Moreover, the study indicated
that reading and understanding the whitepaper was crucial to the
investment decision.
One important aspect of valuation is the relationship of ICO-
initiated coins to the general cryptocurrency market. Since Bit-
coin is the longest-existing cryptocurrency, has by far the largest
market capitalization and is the most-used medium used in
transactions on exchanges, it can be seen as a market benchmark
against which to measure returns (Ciaian & Rajcaniova, 2018;
Hayes, 2017). Moreover, the findings of Gandal and Halaburda
(2016) suggested that the general price movement of Bitcoin was
a good indication of the direction in which the other crypto-
currencies were moving. Due to the success of the provision of
smart contracts to create a platform on which other crypto-
currencies are allowed to run, Ethereum has also become an
important cryptocurrency that could have an influence on the
overall ICO market.
2.2. Theory of initial returns
It has clearly been shown in the financial literature that IPOs
generally exhibit underpricing and that this is apparent in all
countries and all sectors. Various explanations have been given for
underpricing, which means that theoretically the issuing company
e or, in the ICO case, the venture e could have gained more money
if it had been offered at the price established on the first trading
day. The most prominent and established theory is that it occurs
due to existing information asymmetry (Ljungqvist, 2007, pp.
375e422). This theory assumes that there are fundamental differ-
ences in the amount of information available in the three groups
involved in an IPO: the issuer, the underwriter and the investors.
Moreover, among the investors, there is also information asym-
metry, separating investors with more knowledge (informed in-
vestors) from those with less (uninformed investors). There is
strong support for an existing relationship between the initial re-
turn and the ex-ante uncertainty. Since the value of an ICO is even
more uncertain than that of an IPO, which already has a product
and reliable financial information about the operation, the infor-
mation asymmetry in an ICO is even higher. An explanation for
information asymmetry is the winner’s curse theory (Rock, 1986).
Under the assumption that informed investors will then invest in
 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10
the ICOs which seem to be more underpriced, while uninformed
investors will invest in those which are priced at an accurate value
or too high. This imposes the so-termed “winner’s curse” since the
uninformed investors receive all the tokens of the unattractive in-
vestments, while being partially crowded out of the attractive ones.
In order for the uninformed investors to stay in the market, this
theory assumes that the demand of the informed investors is
insufficient and therefore the expected return for the uninformed
investors is still positive. ICO ventures, on the other hand, might be
incentivized to sell their tokens at a lower price.
In response to the Dotcom bubble and the large underpricing at
that time, many researchers have argued that the previously
examined information-based theories cannot offer an accurate
explanation for underpricing. Instead, the focus has turned to
behavioral theories (Ljungqvist, 2007, pp. 375e422). Behavioral
finance looks at the sentiment or “irrationality” expressed by in-
vestors and how this influences pricing. Even more than IPOs, we
can regard ICOs as very young ventures about which very limited
information is known. Therefore, it is very difficult to value them
correctly. Hence, uninformed investors will invest because of their
optimistic sentiments rather than any fundamental criteria. In
addition, Loughran and Ritter (2002) argued that behavioral traits
could also explain the ventures’ perspective. While leaving money
on the table, the issuers might feel optimistic that the ensuing in-
terest in the company will increase their ability to sell retained
shares e or tokens e at a later point in time. Thus, an explanation
for underpricing in ICOs could be offered by a combination of the
information-asymmetry-based and behavioral theories.
3. Data and methodology
3.1. Data collection
We start with the ICO tracker provided by CoinDesk.com, one of
the leading publishers of news articles in the crypto environment,
and provider of data and price indices. The ICO tracker provides the
amount of funds raised and the closing date of each reported ICO. In
order to analyze the initial return, we then verify whether these
ICOs are listed on an exchange with trading data available on
Coinmarketcap.com, which is generally recognized as the most
credible source of cryptocurrency trading data (Howell et al., 2018).
The ICO characteristic variables are manually collected from mul-
tiple available resources, including their websites, whitepapers and
ICO tracking websites, such as ICObench.com, GitHub.com,
ICOdrops.com, Icomarks.com, TrackICO.io and Cryptoslate.com.
After collecting and matching all ICOs from January 2014 to August
2018, we have a final sample size of 502.1 Among them, 484 ICOs
have openly accessible pdf whitepapers that allow us to obtain the
page count, an interesting variable that will be discussed later. Price
data for the MSCI World Index and gold are collected from Data-
Stream, and the total cryptocurrency market capitalization is
collected from Coinmarketcap.com.
3.2. Methodology
In order to determine the initial returns of the ICOs, we follow
the basic approach for IPO initial returns (Ritter & Welch, 2002) to
calculate the initial return as the percentage difference between the
1
Following Howell et al. (2018), we eliminate five outliers with initial returns of
over 3500%.
2
Since cryptocurrencies trade all the time, there is no literal closing price. The
closing price shown on Coinmarketcap.com is the last price reported before 12 pm
Coordinated Universal Time (UTC).
3
closing price on the first day of trading and the offer price during
the ICO2. The price is denominated in USD and the first-day return
is calculated as
Pfirst  PICO
Initial Return ¼
PICO
where Pfirst is the closing price at the end of the first trading day and
PICO is the offering price during the ICO.
Furthermore, to understand different aspects of the influence on
the initial returns of ICOs, we examine a variety of variables. Since
an ICO can be viewed as a form of fund raising, some characteristics
are similar to those of IPOs and crowdfunding. We thus apply the
key factors of cryptocurrencies, IPOs and crowdfunding to deter-
mine the initial returns of ICOs. We examine the influence of a wide
variety of ICO characteristics, cryptocurrency markets, and their
jurisdictions on the initial returns.
The ICO characteristics are divided into fundamental informa-
tion and signals of quality. The fundamental information includes
the funding amount, ICO duration and information on the presale.
The funding amount that the ICO receives provides information on
the level of public interest in the venture, thereby hinting at its
future popularity and liquidity once listed (Howell et al., 2018).
Raised funds are also used to determine underpricing in the IPO
market (Clarke et al., 2006) and success in crowdfunding
(Cumming, Leboeuf, & Schwienbacher, 2020; Mollick, 2014).
Furthermore, elements of the ICO design, including ICO duration
and holding of a presale, are examined. ICO duration is the number
of days for which coins are offered to investors, as is commonly
used in the crowdfunding literature (Cumming et al., 2020; Mollick,
2014; Wang, Li, Liang, Ye, & Ge, 2018). According to Adhami et al.
(2018), presales can be viewed as testing the market on a smaller
group, which may entice future investors.
Aside from the fundamental information, signals of the quality
of an ICO are viewed as critical factors. ICOs usually, but not always,
publish a whitepaper in which they describe their project ideas and
how they plan to achieve them. We not only investigate the effect of
the provision of a whitepaper, but also that of its length, measured
in pages (Adhami et al., 2018). Additionally, we analyze the tech-
nological form adapted, that is, whether a native coin is created
through the project’s own blockchain, or a token on top of an
existing platform is chosen. We also investigate whether the un-
derlying code for the coin is publicly available. These three factors e
a whitepaper, a native coin, and public accessibility of the code e
signal the level of competence and technological savviness among
the project team. While the cryptocurrencies are characterized by
high information asymmetry, the existence of these three factors
might increase trust in the campaign, as a signal of transparency
and reduced risk of technical mistakes or fraud. Since the tech-
nology requirement, proxied by R&D intensity, is found to deter-
mine IPO underpricing (Kao & Chen, 2020), we examine how these
three technological factors influence ICO initial returns.
In the IPO market, it has been witnessed that the general market
can have a strong impact on initial returns (Loughran & Ritter,
2002). We therefore examine how the ICO initial returns are
affected by the cryptocurrency markets. First, we analyze the return
of Bitcoin. Since Bitcoin is the longest-existing cryptocurrency, and
has the largest market capitalization, it can be seen as a market
benchmark for measuring returns (Ciaian & Rajcaniova, 2018;
Hayes, 2017). As many ICOs are operated through smart contracts
running on top of the Ethereum platform and because, according to
Howell et al. (2018), Ether is also the most common payment form
for ICOs, it too is an important cryptocurrency market indicator.
Consistent with the ICO initial return calculation, the returns of
Bitcoin and Ethereum are calculated between the closing date of
4 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10
the ICO and the ICO’s first listing date.
It has often been asserted that the cryptocurrency market is a
speculative bubble e comparable to the Dotcom bubble e with ICO
participants investing not based on the proposed technology itself
but because of strong herd behavior and fear of missing out (Hand,
2017; Zetzsche, Buckley, Arner, & Fo € hr, 2019). Underpricing during
the Dotcom bubble was significantly higher than normal (Loughran
& Ritter, 2004). To examine whether this phenomenon also holds
for the ICO environment, we separate the sample into three periods
that illustrate a financial bubble: the “Early ICO Period”, from 2014
to October 2017, in which a comparatively small amount of ICOs
happened; the “Bubble Period”, from November 2017 to January
2018, when the overall market capitalization of cryptocurrencies
surpassed $180 billion and rose to $835 billion within just two
months; and the subsequent “Bear Market Period”, after February
20183. We then analyze whether listing in any of these periods
influences ICO initial returns.
We also examine whether the jurisdiction might influence the
initial return. There are serious regulatory concerns, which differ
among countries, not only for IPOs (Gombola, Liu, & Chou, 2019),
but also for ICOs. Some jurisdictions seem more open to ICOs, which
might affect investors’ decisions. Regulatory concerns are expected
to significantly affect the pricing of cryptocurrencies and investors’
decisions (Corbet et al., 2019). Huang, Meoli, & Vismara, 2020
furthermore found that ICOs are launched more frequently in
countries with clearer and better developed regulatory frame-
works. Therefore, in jurisdictions with strong regulation, the
cryptocurrency market’s systematic risk will be lower. Here, to
categorize our sample of ICOs from 59 countries, we create a
dummy variable for regulated jurisdictions, which takes the value 1
if the ICO jurisdiction has a regulation for cryptocurrencies, and
0 otherwise.4
Most of the ICOs are implemented specifically with the goal of
using the funds to develop an online platform focusing on a
particular industry. We therefore examine whether the ICO initial
return is influenced by the industry. We categorize all ICOs into five
industries, derived from ICObench.com and ICOdrops.com, specif-
ically finance, entertainment and media, high-tech services, plat-
form and smart contract, and others. We include a set of dummy
variables that take the value 1 if the ICO is issued for the respective
industry, and 0 otherwise.
Lastly, rises in two conventional markets e i.e., the stock and
gold markets e might also enhance ICO initial returns, since in-
vestors could use their profit to invest in riskier assets or diversify
their portfolios. We apply the monthly return prior to the ICO of the
MSCI World Index as a proxy for the general stock market. The MSCI
World Index is used because the sample includes ICOs from 59
countries, and some that do not even reveal a country of origin. In
addition, investment in cryptocurrencies is easily possible from any
country, since most ICOs accept payment in Bitcoin and Ether. This
enables worldwide participation since it does not require interna-
tional bank transactions. Thus, it is coherent to use a representation
of global markets to analyze the impact of traditional financial as-
sets on the ICO sphere. The other conventional financial asset
whose relationship to ICOs we analyze is gold. Cryptocurrencies
have often been compared to gold (Al-Yahyaee, Mensi, & Yoon,
2018; Dyhrberg, 2016), mainly because, like gold, most
3
A bear market is often defined as a particular stock or index declining by more
than 20%. Since the cryptocurrency environment is significantly more volatile, and
therefore 20% swings appear more often, we take the point at which the total
market capitalization declined by 40% from its all-time high as the starting point of
the bear market.
4
The ICO regulation status is obtained from https://www.bitcoinmarketjournal.
com/ico-regulations/as at May 2019.
cryptocurrencies have a limited supply that cannot be increased
artificially. Thus, we take the monthly return on gold to examine
whether there is a relationship between the price movements in
the gold market and the initial returns of ICOs.
In order to examine the initial returns of ICOs, the following
model is estimated:
Initial Returnsi ¼ c þ b1 LogðFundsi Þ þ b2 ICO Durationi
þ b3 Presalei þ b4 Whitepaperi þ b5 Native coini
þ b6 Accessible Codei þ b7 Bitcoin Returni
þ b8 Ethereum Returni þ b9 Bubble Periodi
þ b10 Bear Market Periodi
þ b11 Regulated Jurisdictionsi
þ b12 Industry Dummyi
þ b13 MSCI Monthly Returni
þ b14 Gold Monthly Returni þ εi
4. Empirical results
4.1. Descriptive statistics
The descriptive statistics shown in Table 1 reveal an average
initial return of 110%, which is enormous and implies that under-
pricing is very large in the ICO sector. In comparison, the average
initial return of IPOs during the same timeframe (2014e2018) was
only 15.67%.5 However, the median return of the ICOs is slightly
negative. In comparison, in the same timeframe, only 32.16% of IPOs
closed below their filing price on the first trading day. Thus,
comparing ICOs to IPOs, we see that the ICOs have a far higher
average initial return, but also more often have a negative initial
return. Thus, these results imply it is riskier to invest in ICOs, but
the profit potential is greater. It also suggests that information
asymmetry is more severe in the cryptocurrency market and that
there is more uncertainty in the valuation of ICOs. This is consistent
with other studies (Al-Yahyaee et al., 2018; Urquhart, 2016) that
have shown that the cryptocurrencies are market inefficient.
In addition, ICOs were funded with an average of $28 million.
The average ICO duration was 25 days and 38% held a presale.
Almost all ICOs published a whitepaper, with an average length of
34 pages. Only 43 ICOs, which is less than 9% of the sample, had
created a new native blockchain. Instead, most ICOs had decided to
run their coin through a smart contract on top of another block-
chain. On the other hand, 330 of the ICOs, which represents almost
two-thirds of the sample, had made their code publicly accessible.
Around 25% of the ICOs were conducted during the bubble period
in which the total cryptocurrency market capitalization peaked and
44% were undertaken during the bear market period. For 42% of the
ICOs, there is a regulation for cryptocurrencies in the jurisdiction of
origin of their founder(s). In terms of the industries to which the
ICOs belong, 18% are related to the finance sector, 14% to the
entertainment and media industry, 21% to high-tech services, and
the largest group, making up 31%, relate to platform and smart
contracts. Finally, the average monthly return of the MSCI World
Index on the days when the ICOs were listed was 1.32%, while the
average monthly gold return was 0.21% on these days.
Table 2 provides the correlation coefficients of the variables
used in the analysis. All of the correlations are lower than the
5
IPO data are accessible at https://site.warrington.ufl.edu/ritter/ipo-data/.
 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10 5

Table 1
Descriptive statistics.

Mean Median Std. Dev. Observations

Initial Returns 1.095 0.0048 3.400 502

Funds ($m) 28.031 13.107 189.809 502
ICO Duration 24.574 21 28.668 502
Presale 0.378 0 0.485 502
Whitepaper (dummy) 0.982 1 0.133 502
Whitepaper (pages) 33.674 31 18.659 484a
Native 0.0857 0 0.2801 502
Accessible Code 0.657 1 0.475 502
Bitcoin Return 0.1408 0.0023 0.9286 502
Ethereum Return 1.2260 0 19.9215 495b
Bubble Period 0.2550 0 0.436 502
Bear Market Period 0.4363 0 0.496 502
Regulated Jurisdictions 0.4203 0 0.4941 502
Industry: Finance 0.1833 0 0.3873 502
Industry: Entertainment and Media 0.1355 0 0.3426 502
Industry: High-Tech Services 0.2112 0 0.4085 502
Industry: Blockchain and Platform 0.3147 0 0.4649 502
Industry: Other 0.1554 0 0.3626 502
MSCI Monthly Return 0.0132 0.015 0.024 502
Gold Monthly Return 0.0021 0.008 0.031 502
a
Only 484 ICOs have openly accessible pdf whitepapers that allow a page count to be obtained.
b
Ethereum was initially released in August 2015. Therefore, only 495 ICOs have Ethereum returns.

suggested threshold of 0.7, indicating the validity of the selected
variables and showing that there is no concern regarding
multicollinearity.
4.2. Effects of ICO characteristics and crypto markets on initial
returns
Table 3 shows the results for the effects of basic ICO character-
istics and cryptocurrency markets on initial returns. First, we find
that the amount raised during the ICO has no significant influence
on the initial return. While Howell et al. (2018) found a positive
influence on liquidity and trading volume, which is conceivable
considering that a higher amount raised means that there is more
money involved in these ICOs, it seems not to manifest itself in the
initial return. In terms of the duration, our results suggest that a
shorter ICO duration does have a significant impact on the initial
return, which is similar to Fisch et al. (2018) finding that a shorter
duration of ICO leads to a greater amount raised. Thus, briefly
offered cryptocurrencies trigger some investors to buy them on the
secondary market. This could be due to the investor feeling they
have missed out, or having genuinely wanted to buy but missed the
opportunity due to the short duration.
Holding a presale before offering the cryptocurrency to the
general public significantly decreases the initial return. Presale
investors are often seen as rational investors, since they possess
more information about the venture. Therefore, ICOs with presales
likely have fewer sentiment investors, which will reduce informa-
tion asymmetry and thus lower underpricing. Given that Howell
et al. (2018) found the trading activity in ICOs to have been
enhanced by presales, our finding implies that presale investors
who obtain tokens for a cheaper price are more prone to sell them
as soon as they are listed, thereby increasing the trading volume
while diminishing the initial return for other investors.
Regarding the signaling of quality, the information about an ICO
is usually mainly provided in a whitepaper. Since whitepapers are
not a legal prerequisite, not all ICOs publish them. Despite that,
almost all the ICOs in our sample did publish a whitepaper, but its
existence is insignificant. Since there are also no specific re-
quirements about the information to be placed in such papers, their
quality is difficult to judge and will be quite subjective. We there-
fore took the number of pages as the best indication of quality we
could obtain. The results reveal that, while the mere existence of a
whitepaper is not significant, the number of pages has a signifi-
cantly negative effect, indicating that investors value precisely
formulated papers. Writing too much might make the idea more
complicated and show that the objective is not yet clearly definable.
This is especially telling, considering that the average length is 34
pages, while the whitepaper for the most successful and ground-
breaking cryptocurrency (Bitcoin) laid out all the important infor-
mation in only 9 pages (Nakamoto, 2008).
Another important characteristic is whether the ICO launches a
new blockchain or the token is built on top of an already existing
blockchain. Probably because native coin creation can signal to the
ICO investors that the developers are more technologically
competent, we find that this dummy variable is significant, and that
investors who invest in the projects that have their own blockchain
can expect a higher initial return. This finding is supported by
Howell et al. (2018), who found that these coins tend to be more
actively traded once they are listed on a secondary market, indi-
cating higher interest in them. Other than the open availability of
the code, native coin creation is presumably one of the more
obvious signals to investors, who invest based on the technical
sufficiency of the team and the technological motives of the project,
according to a survey of ICO investors (Fisch et al., 2018).
Finally, while the availability of the code is positively correlated
to the initial return, it is not significant. This is in line with the
findings of Howell et al. (2018), who even examined different cat-
egories of the GitHub activities and found little significance for
trading volume and volatility. Contrary to that, Adhami et al. (2018)
found that code availability does impact the rate of success of
raising the target amount during the ICO. Thus, it seems that the
open availability of code is important for investors when judging
whether to invest in an ICO, but does not influence investment
behavior significantly after the ICO is finished. A reason for this
might be that most investors are not sufficiently tech savvy to
understand the code and it is therefore just seen as a indicator of
the transparency and credibility of the ICO team, but does not in-
fluence the success of the project itself after the coin offering has
finished.
To determine the influence of the overall cryptocurrency market
environment on ICOs, we look at two major cryptocurrencies. Bit-
coin is the first and still the major cryptocurrency, with the most
6 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10

Table 3

15
Effects of ICO characteristics on initial returns.

1
(1) (2) (3) (4)

0.296***
Constant 1.1638 2.0311 0.6937 1.7348***
(1.1284) (0.4398) (1.1105) (0.4452)
14

1
Log (Funds) 0.0812 0.0334 0.0137 0.0265
(0.1111) (0.1147) (0.1114) (0.1160)

0.413***
0.389***
ICO Duration 0.0099** 0.0088* 0.0101* 0.0096*
(0.0052) (0.0053) (0.0052) (0.0053)
Presale 0.9117*** 0.6648** 0.8081*** 0.5875*
13

1
(0.3087) (0.3197) (0.3053) (0.3177)
Whitepaper (dummy) 0.3870 0.5735

0.525***
0.453***
0.428***
(1.1267) (1.1025)
Whitepaper (pages) 0.0211** 0.0196**
(0.0085) (0.0086)
12

1
Native Coin 2.2631*** 1.8594*** 1.8071*** 1.5563**
(0.5456) (0.5648) (0.5560) (0.5736)
0.048
0.003
Accessible Code 0.2046 0.2044 0.2443 0.2406
0.048
0.035

(0.3184) (0.3236) (0.3123) (0.3187)

11

Bitcoin Return 0.5654*** 0.5403***

(0.1707) (0.1730)
0.048
0.007
0.061
0.009
0.047

Ethereum Return 0.0149* 0.0158**

(0.0080) (0.0080)
10

R-squared 0.0629 0.0602 0.0977 0.1008

Adjusted R-squared 0.0516 0.0484 0.0829 0.0854
0.212***
0.091**
0.368***

0.183***

Observations 502 484 495 478

0.062
0.040

Robust standard errors are shown in parentheses. *, ** and *** indicate statistical
significance at the 10%, 5% and 1% level, respectively.
9

0.120***

0.141***
0.032

0.036

0.017
0.034

0.066

media coverage and the greatest amount of hashing power

contributed to secure it. Moreover, it is the one on which the most
8

research has been done, and has the highest trading volume and
0.097**
0.164***

0.154***

0.083*
0.077*

highest market capitalization. Thus, it is arguably the crypto-

0.023
0.015
0.055

currency that most represents the cryptocurrency market as a

7

whole, and can be taken as a benchmark. The second largest

cryptocurrency throughout most of the study period has been
0.132***

0.260***

Ethereum. This cryptocurrency is not only important for analyzing

0.082*

0.032

0.049
0.052
0.027

0.058
0.018

the ICO sphere by virtue of the above-mentioned attributes that

make Bitcoin important, but also because it has created a platform
6

that, through the implementation of smart contracts, allows other

0.206***

0.116**

cryptocurrencies to run on top of its blockchain. This has stream-

0.069

0.017

0.028
0.033

0.002

0.023
0.025

0.041

lined the ICO process because it has made the creation of a token
5

not only more time efficient but also less technical. Hence, most
*, ** and *** indicate statistical significance at the 10%, 5% and 1% level, respectively.

ICOs are being run on Ethereum (83% of the sample). In Columns 3

0.136***
0.242***

0.259***

0.078*

and 4 of Table 3, the results show that both Bitcoin and Ethereum
0.055

0.047
0.088*

0.031

0.038
0.065

0.028

returns have a positive and significant influence on the initial re-

4

turn. Comparing the effects of the two cryptocurrencies, in line

with the fact that Bitcoin can be viewed as the benchmark of the
0.146***
0.018

0.010

0.032

0.070
0.066

cryptocurrency market, we find that its return has a greater impact

0.027

0.065
0.005
0.003
0.032

0.048

than that of Ethereum on ICO initial returns. Overall, our findings

3

regarding the influence of the crypto market seem to imply that it

does indeed have a major influence on the initial return investors
0.169***
0.130***
0.114**
0.242***

0.227***
0.093**

can expect when investing in an ICO. Therefore, our results suggest

0.056
0.006

0.019

0.040

0.047
0.047

0.019

that an investor should not only look at the characteristics of the

2

project, but also the general outlook of the crypto market.

0.138***

0.155***

0.265***
0.153***

0.214***
0.176***

0.203***

0.169***
0.221***
0.074
0.056

0.009

0.042

0.004

4.3. Effect of ICO duration on initial returns

1

While ICO duration is clearly an important factor that influences

11.Regulated Jurisdictions

14.MSCI Monthly Return

15.Gold Monthly Return

ICOs’ initial returns, we further examine its effect by separating the

5.Whitepaper (dummy)

13.Bear Market Period

6.Whitepaper (pages)

sample into ICOs of short and long duration. We classify them as

10.Ethereum Return
8.Accessible Code

short duration if their duration is shorter than the median of 21

12.Bubble Period
9.Bitcoin Return
1.Initial Returns
Correlation table.

3.ICO Duration

days, and otherwise as long duration.

The results are shown in Table 4, where the first two columns
4.Presale

7.Native
2.Funds

present the results for short-duration ICOs and the last two for
Table 2

long-duration ICOs. We find that in the sample of short-duration

ICOs, the effect of the duration on the initial return is greater
 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10 7

Table 4
Effects of ICO characteristics on initial returns by duration.

(1) (2) (3) (4)

Short-duration Short-duration Long-duration Long-duration

Constant 0.5671 1.8696*** 0.1018 1.4817***

(0.8402) (0.6511) (0.3729) (0.5237)
Log (Funds) 0.0665 0.0671 0.0038 0.0427
(0.1765) (0.1910) (0.1367) (0.1435)
ICO Duration 0.0391 * 0.0403* 0.0024 0.0022
(0.0209) (0.0219) (0.0067) (0.0071)
Presale 0.7012 * 0.5924* 0.5584 0.2323
(0.3592) (0.3317) (0.3573) (0.3657)
Whitepaper (dummy) 0.8804 0.8164*
(0.6510) (0.4231)
Whitepaper (pages) 0.0124 0.0240***
(0.0116) (0.0075)
Native Coin 3.8909** 3.9382** 0.7672 0.5329
(1.6537) (1.7738) (0.7712) (0.7559)
Accessible Code 0.2650 0.2181 0.0994 0.0976
(0.3488) (0.3489) (0.4075) (0.4259)
Bitcoin Return 1.8224* 1.8232* 0.4197** 0.4011**
(0.9420) (0.9722) (0.2067) (0.2114)
Ethereum Return 2.5942*** 2.6911*** 0.0194*** 0.0203***
(0.6560) (0.6790) (0.0035) (0.0035)
R-squared 0.2505 0.2538 0.1169 0.1324
Adjusted R-squared 0.2258 0.2284 0.0869 0.1015
Observations 251 244 244 234

Robust standard errors are shown in parentheses. *, ** and *** indicate statistical significance at the 10%, 5% and 1% level, respectively.

than in the overall sample, analyzed above in Table 3. In contrast,
among the ICOs of longer duration, the effect of the duration on the
initial return becomes insignificant. These results suggest that the
effect of the duration on the initial return depends on the duration.
For short-duration ICOs, having fewer days of ICO will increase their
initial returns, while, if the ICO duration is long, then having fewer
or more days will have no effect. This again confirms our argument
that shorter ICOs trigger some investors to invest in crypto-
currencies, having missed the opportunity during the short offering
period, thus causing high initial returns. In contrast, if the ICO
duration is already long, giving investors a long period in which to
invest, then changes to the length will have no additional effect on
the initial returns. Overall, this implies that the ICO duration is an
important signal for investors.
4.4. Effect of ICO period, and cross-effect of ICO period and crypto
market, on initial returns
the cryptocurrency markets, represented by Bitcoin and Ethereum
returns, has a significant influence on ICO initial returns. While
both cryptocurrency market returns and the ICO period are
important individually for the ICO initial returns, we further
examine the cross-effect between Bitcoin (and Ethereum) returns
and the bubble (and bear market) periods. In Columns 2 and 3 of
Table 5, we show the results for how the Bitcoin return affected the
ICO initial returns during the bubble and bear market periods. It is
found that the interaction coefficients for the Bitcoin return crossed
with both ICO periods are insignificant. These results imply that the
effect of the Bitcoin return on initial returns does not change
depending on the period. For the Ethereum return, meanwhile, the
results in Columns 4 and 5 of Table 5 show that both interaction
coefficients are significantly positive. This implies that the effect of
the Ethereum return on initial returns during both the bubble
period and the bear market period is significant. Therefore, we can
conclude that the Ethereum return, the ICO periods, and their
cross-effects are all important in determining the ICO underpricing.

Since ICOs experienced a strong bull market in early 2018, with a

top total market capitalization of 835 billion USD, before going
through a bear market with market capitalization declining to less
than 200 billion USD, the ICO phenomenon that has been witnessed
has often been described as a speculative bubble, comparable to the
Dotcom bubble or earlier historical events such as Tulip mania or
the South Sea Bubble. Studies examining underpricing during the
Dotcom bubble have revealed that the underpricing increased
significantly at that time (Loughran & Ritter, 2004). Therefore, we
also expect that the ICO underpricing should be higher when the
market is in a bubble period. The results in the first column of
Table 5 show that the period in which an ICO was listed has a sig-
nificant impact on its initial return. It is found that the initial
returns are higher if an ICO was listed during the bubble period and
lower if it was listed during the bear market period, relative to
those listed during the early ICO period. Investors during the
bubble period saw much higher initial returns than investors dur-
ing the bear markets. Our results imply that the cryptocurrency
market is driven by speculation.
According to a prior test, we also know that the performance of
4.5. Effect of ICO jurisdiction and ICO industry on initial returns
We further examine whether the jurisdiction and industry might
influence the initial return. One key issue for the future of the ICO
sector is how regulations will be applied. Considering the amount of
funding and media attention ICOs have received, it is obvious that
governments have to take a position on how this new sector should be
handled. These regulations will have major effects on the value of
these cryptocurrencies. Therefore, we examine whether an ICO
launched in a regulated jurisdiction will have a higher initial return
due to the lower systematic risk. It can be seen that the presence of ICO
regulations in a jurisdiction has a significantly positive effect on initial
returns in Columns 1 and 2 of Table 6. This result implies that rigid
regulations on ICOs can reduce uncertainty for investors, by lowering
the possibility of a project being fraudulent. High enforcement of
regulations attracts ICO investors and thus appears to enhance ICO
initial returns. Thus, our results encourage governments to impose
regulations to protect investors in cryptocurrencies.
The results for the effect of ICO industry are presented in the last
8 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10

Table 5
Effect of ICO period and cross-effect with crypto markets on initial returns.

(1) (2) (3) (4) (5)

Constant 0.9349 0.7268 * 1.0068** 0.9597** 1.3720***

(1.0870) (0.4340) (0.3911) (0.4800) (0.4842)
Log (Funds) 0.0196 0.0414 0.0795 0.0678 0.0648
(0.1129) (0.1147) (0.1181) (0.1135) (0.1176)
ICO Duration 0.0086* 0.0081 0.0083 0.0094* 0.0079
(0.0051) (0.0049) (0.0052) (0.0055) (0.0054)
Presale 0.6847** 0.8013*** 0.4215* 0.9975** 0.5044**
(0.3159) (0.2765) (0.2553) (0.2744) (0.2535)
Whitepaper (dummy) 0.3938 0.2355 0.4972 0.2467 0.3723
(1.0764) (0.4142) (0.3669) (0.4692) (0.4830)
Native Coin 1.9046*** 2.3504*** 2.0923*** 2.0921*** 1.6115*
(0.5487) (0.7871) (0.8026) (0.8922) (0.8499)
Accessible Code 0.1031 0.0676 0.2174 0.0009* 0.1491
(0.3082) (0.2779) (0.2788) (0.2818) (0.2829)
Bitcoin Return 0.3760** 1.0416** 0.5217**
(0.1708) (0.5706) (0.2248)
Ethereum Return 0.0173** 0.0228* 0.0235***
(0.0078) (0.0022) (0.0030)
Bubble Period 1.0360** 1.67498** 1.6929***
(0.4155) (0.4268) (0.4333)
Bear Market Period 0.8560** 1.3599*** 1.4208***
(0.3757) (0.2725) (0.2706)
Bitcoin ReturnBubble Period 0.7954
(0.5945)
Bitcoin ReturnBear Market Period 0.6681
(0.7455)
Ethereum ReturnBubble Period 0.0571**
(0.0190)
Ethereum ReturnBear Market Period 1.1304**
(0.4447)
R-squared 0.1451 0.1147 0.1316 0.1285 0.1301
Adjusted R-squared 0.1274 0.0971 0.1158 0.1124 0.1140
Observations 495 502 502 495 495

Robust standard errors are shown in parentheses. *, ** and *** indicate statistical significance at the 10%, 5% and 1% level, respectively.

two columns of Table 6. They show that, while being related to the
finance and entertainment sectors has no significant influence on
initial returns, ICOs related to high-tech services and platform
products have significantly higher initial returns. This finding is not
surprising, since the use of ICOs to fund projects is based on the
blockchain technology. In addition, Fisch et al. (2018) found that
investors are not only driven by the potential gain in value, but also
crucially have technical motives for investing in ICOs. Thus, ICOs in
the high-tech services and platform industries can attract more
investors, and thus produce higher initial returns than those in
other industries.
4.6. Effect of conventional markets on initial returns
While we found that the ICO underpricing was higher during
the bubble period, it is conceivable that an upward trend in the
general market could have the same effect on ICO underpricing.
Therefore, we examine how general movements in the conven-
tional markets might influence the initial returns for ICO investors.
Because ICOs are a global phenomenon and participation is not
restricted to any countries or regions, we take the MSCI World In-
dex as our key market indicator. Additionally, since cryptocurren-
cies are often compared to gold, we investigate the effect of the
monthly gold return on the ICO initial return.
In Table 7, we find that the monthly returns of the MSCI World
Index, as well as the monthly return on gold, have a significant
positive influence on the initial return. ICO investors seem to get
higher rewards if the global stock markets or gold are moving up-
wards. An explanation for these outcomes might be that an in-
crease in general wealth through other investments in traditional
markets attracts investors more to riskier assets, thereby contrib-
uting to a higher price after the ICO is listed. The finding that ICO
investors are being generally quite risk seeking provides support
for this reasoning (Fisch et al., 2018). Another explanation might be
that it is not necessarily appetite for risk, but rather higher financial
capabilities, that make investors look for new financial instruments
in which to invest and thereby diversify their portfolio.
5. Conclusion
This study examines ICO initial returns and their determinants
by analyzing a wide cross-section of cryptocurrencies. We found a
significant phenomenon of ICO underpricing, which supports the
information asymmetry and behavioral finance theories adopted
from IPO underpricing. In terms of the ICO characteristics, we found
that a presale and a lengthy whitepaper have negative effects on
the initial return, while having a shorter duration and running on
an independent blockchain with native coin both have positive
impacts. The environment of the cryptocurrency markets has a
strong influence on ICO initial returns. Our results show that the
movements of both Bitcoin and Ethereum have significantly posi-
tive influences.
Analyzing the cryptocurrency market more broadly, by sepa-
rating the analysis period into three segments, the explanatory
power of the cryptocurrency market rises even higher: Our findings
show listings of ICOs during the bubble (bear market) period to
have resulted in significantly higher (lower) initial returns. In
addition, we found that ICOs launched in jurisdictions with ICO
regulations have greater initial returns than those launched else-
where, suggesting that the jurisdiction of the ICO is an influential
factor. Further, we found that the industry to which the ICO belongs
is another significant factor determining the initial returns. ICOs in
the high-tech services and platform industries have higher initial
returns than those in other industries. Assets from the conventional
 H.-C. Hsieh, J. Oppermann / Asia Pacific Management Review 26 (2021) 1e10 9

Table 6
Effect of ICO jurisdiction and ICO industry on initial returns.

(1) (2) (3) (4)

Constant 0.4212 1.4406*** 0.0100 1.2171**

(1.0181) (0.4784) (0.5651) (0.4957)
Log (Funds) 0.0893 0.0660 0.0177 0.0220
(0.0988) (0.1136) (0.1091) (0.1155)
ICO Duration 0.0078* 0.0072 0.0098* 0.0093*
(0.0046) (0.0053) (0.0052) (0.0054)
Presale 0.7275*** 0.5626** 0.7933*** 0.5614**
(0.2702) (0.2373) (0.2730) (0.2643)
Whitepaper (dummy) 0.7362 0.7402
(1.0138) (0.4657)
Whitepaper (pages) 0.0126*** 0.0191***
(0.0045) (0.0063)
Native Coin 1.3779*** 1.1312*** 1.7427** 1.5446*
(0.5038) (0.8732) (0.8561) (0.8848)
Accessible Code 0.1321 0.1232 0.2855 0.2918
(0.2735) (0.2713) (0.2862) (0.2961)
Bitcoin Return 0.5685*** 0.5666** 0.5405** 0.5221*
(0.1533) (0.2816) (0.2682) (0.2700)
Ethereum Return 0.0160** 0.0166** 0.0163*** 0.0170***
(0.0069) (0.0046) (0.0044) (0.0044)
Regulated Jurisdiction 0.4754* 0.4814*
(0.2612) (0.2628)
Industry: Finance 0.3023 0.2696
(0.3704) (0.3889)
Industry: Entertainment and Media 0.2803 0.1899
(0.4095) (0.3997)
Industry: High-Tech Services 0.6821* 0.7193**
(0.3540) (0.3592)
Industry: Platform and Smart Contract 0.8926** 0.7625**
(0.3920) (0.7625)
R-squared 0.1158 0.1147 0.1070 0.1087
Adjusted R-squared 0.0988 0.0971 0.0848 0.0857
Observations 478a 461a 495 478

Robust standard errors are shown in parentheses. *, ** and *** indicate statistical significance at the 10%, 5% and 1% level, respectively.
a
ICOs from those urisdictions that currently ban cryptocurrency were removed.

Table 7 found few or no interrelationships between the cryptocurrency

Effect of conventional markets on initial returns. world and conventional financial assets, we found that positive
(1) (2) (3) returns in conventional markets prior to the listing do trigger larger
Constant 0.2178 1.2182 0.7941
initial returns for ICO investors.
(1.1044) (1.0958) (0.5123)
Log (Funds) 0.0068 0.0286 0.0116 Funding
(0.1102) (0.1094) (0.1189)
ICO Duration 0.0090* 0.0083 0.0079
(0.0051) (0.0051) (0.0052) This research did not receive any specific grant from funding
Presale 0.8560*** 0.6915** 0.7450*** agencies in the public, commercial, or not-for-profit sectors.
(0.3018) (0.3007) (0.2632)
Whitepaper (dummy) 0.7592 0.1415 0.3457
(1.0900) (1.0861) (0.4892)
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