IPO long run underperformance is a widely debated anomaly in corporate finance literature. Present study inquires whether above anomaly exists even after pricing for well known risk factors constructed based on size as well as illiquidity. This study proposed a new illiquidity based four factor asset pricing model and tested it using Sri Lankan initial public offering (IPO) stocks in inter war period and post war period. Proposed model was compared with Carhart (1997) four factor model. Both

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... inary least square regression and weighted least square regression have been used to test Carhart's model and proposed model in Sri Lankan context. It is found that long run IPO underperformance anomaly existed even after pricing for the illiquidity premium. Further two models perform very similarly and it is not fair to say one is superior to the other.