Purpose- The paper explores the correlation between investors’ sentiment, underpricing and performance over a period of 36 months of
newly issued American stocks with a sample of 199 newly listed firms on NASDAQ and NYSE within the period of January 2015 to April 2021.
IPOs listed on US stock exchanges have received little attention even though anomalies related to new stock issues are well documented.
We aim to fill the existing academic gap.
Methodology- We have hypothesized investor sentiment as the potential explaining variable inducing the anomalies observed and we extract
this variable from the American Association of Individual Investors1 survey results per the nearest date of each IPO issue. We compute the
returns in two separate timeframes. The Market Adjusted Initial Returns (MAIRs) are computed as the price change observed during the
offer day, adjusted to the S&P500 index. We investigate long-term performance by calculating the Buy-and-Hold Abnormal Return (BHARs)
of each IPO for a period of 36months. The company characteristics, which are age, proceeds, number of issued shares, venture capital backing
status and economic sector, are retrieved from Thomson Reuter’s screens to control on IPO pricing. Then we use a regression model to see
whether the predictor variable has an effect on the outcome variable.
Findings- We found that the correlation between the bullish ratio and the MAIRs confirms results found in previous literature and no
relationship between investor sentiment and long run performance have been observed.
Conclusion- We conclude that on American stock markets, the existing underpricing can be explained by investors overreacting to new issues
while findings relative to the long run performance contradict earlier research, as there is no evidence of underperformance among
companies that went public between January 2015 and April 2021. Further research can be oriented toward understand why the documented
poor performance related to IPOs no longer exists, as well as the particular characteristics of US markets which are favorable to the
profitability of the new issues in the long-term.
Investor sentiment behavioral finance long-term performance underpricing initial public offering IPO
Primary Language | English |
---|---|
Subjects | Finance, Business Administration |
Journal Section | Articles |
Authors | |
Publication Date | March 30, 2022 |
Published in Issue | Year 2022 Volume: 11 Issue: 1 |
Journal of Business, Economics and Finance (JBEF) is a scientific, academic, double blind peer-reviewed, quarterly and open-access journal. The publication language is English. The journal publishes four issues a year. The issuing months are March, June, September and December. The journal aims to provide a research source for all practitioners, policy makers and researchers working in the areas of business, economics and finance. The Editor of JBEF invites all manuscripts that that cover theoretical and/or applied researches on topics related to the interest areas of the Journal. JBEF charges no submission or publication fee.
Ethics
Policy - JBEF applies the standards of
Committee on Publication Ethics (COPE). JBEF is committed to the academic
community ensuring ethics and quality of manuscripts in publications.
Plagiarism is strictly forbidden and the manuscripts found to be plagiarized
will not be accepted or if published will be removed from the publication. Authors
must certify that their manuscripts are their original work. Plagiarism,
duplicate, data fabrication and redundant publications are forbidden. The
manuscripts are subject to plagiarism check by iThenticate or similar. All manuscript submissions must provide a similarity report (up to 15% excluding quotes, bibliography, abstract, method).
Open Access - All research articles published in PressAcademia Journals are fully open access; immediately freely available to read, download and share. Articles are published under the terms of a Creative Commons license which permits use, distribution and reproduction in any medium, provided the original work is properly cited. Open access is a property of individual works, not necessarily journals or publishers. Community standards, rather than copyright law, will continue to provide the mechanism for enforcement of proper attribution and responsible use of the published work, as they do now.