IPO Pricing in “Hot” Market Conditions: Who Leaves Money on the Table?
Article first published online: 20 JUL 2005
The Journal of Finance
Volume 60, Issue 1, pages 487–521, February 2005
How to Cite
DERRIEN, F. (2005), IPO Pricing in “Hot” Market Conditions: Who Leaves Money on the Table?. The Journal of Finance, 60: 487–521. doi: 10.1111/j.1540-6261.2005.00736.x
- Issue published online: 20 JUL 2005
- Article first published online: 20 JUL 2005
This paper explores the impact of investor sentiment on IPO pricing. Using a model in which the aftermarket price of IPO shares depends on the information about the intrinsic value of the company and investor sentiment, I show that IPOs can be overpriced and still exhibit positive initial return. A sample of recent French offerings with a fraction of the shares reserved for individual investors supports the predictions of the model. Individual investors' demand is positively related to market conditions. Moreover, large individual investors' demand leads to high IPO prices, large initial returns, and poor long-run performance.