{"title":"Optimism, divergence of investors’ opinions, and the long-run underperformance of IPOs","authors":"Naoshi Ikeda","doi":"10.1016/j.finmar.2022.100800","DOIUrl":null,"url":null,"abstract":"<div><p>The long-run underperformance of initial public offerings (IPOs) suggests that aftermarket prices are overvalued. According to the theory of heterogeneous beliefs and short-sale constraints, the aftermarket price of IPOs is overvalued; in addition, their performance deteriorates when the mean level of optimism and degree of divergence of investors’ opinions increase. I examine this phenomenon by estimating the mean and divergence of investor opinion distribution by focusing on Japanese auction-method IPOs. According to the results, both optimism and divergence cause the overvaluation of IPO’s first-day market price; however, only the mean level of optimism is statistically significant in explaining post-IPO underperformance.</p></div>","PeriodicalId":47899,"journal":{"name":"Journal of Financial Markets","volume":null,"pages":null},"PeriodicalIF":2.1000,"publicationDate":"2023-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"1","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial Markets","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1386418122000891","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 1
Abstract
The long-run underperformance of initial public offerings (IPOs) suggests that aftermarket prices are overvalued. According to the theory of heterogeneous beliefs and short-sale constraints, the aftermarket price of IPOs is overvalued; in addition, their performance deteriorates when the mean level of optimism and degree of divergence of investors’ opinions increase. I examine this phenomenon by estimating the mean and divergence of investor opinion distribution by focusing on Japanese auction-method IPOs. According to the results, both optimism and divergence cause the overvaluation of IPO’s first-day market price; however, only the mean level of optimism is statistically significant in explaining post-IPO underperformance.
期刊介绍：
The Journal of Financial Markets publishes high quality original research on applied and theoretical issues related to securities trading and pricing. Area of coverage includes the analysis and design of trading mechanisms, optimal order placement strategies, the role of information in securities markets, financial intermediation as it relates to securities investments - for example, the structure of brokerage and mutual fund industries, and analyses of short and long run horizon price behaviour. The journal strives to maintain a balance between theoretical and empirical work, and aims to provide prompt and constructive reviews to paper submitters.
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