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Retail Trading and IPO Returns in the Aftermarket


  • Yue-Cheong Chan

    1. Yue-Cheong Chan is an Associate Professor in the School of Accounting and Finance at Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, PRC.
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  • I am grateful to an anonymous referee for very helpful and constructive comments and suggestions. This paper has also been benefited from the comments of Kalok Chan and participants of the Asian FA–NFA 2008 International Conference. Financial support from Hong Kong Polytechnic University (project account code G-U310) is gratefully acknowledged. Any errors are my own.


Using trade size from the Trade and Quote (TAQ) data set as a proxy for individual versus institutional trading, this paper finds that the effects of trading of these two types of investors on initial public offering (IPO) returns on the first trading day depend on the hotness of the IPO. My regression results reveal that IPOs’ open-to-close returns are positively related to small trade participation, small trade purchases, and small trade order imbalance in the hot IPO sample, but not in the cold and neutral IPO samples. In addition, the aftermarket prices of cold and neutral IPOs are primarily driven by the trading of institutional investors, who are less likely to be driven by sentiment.