Firm quality or market sentiment: what matters more for IPO investors?

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

This paper investigates the investment decisions of IPO investors when equipped with information on both the quality of the firm and the market sentiment. Unique regulatory provisions allow IPO investors in India to have access to the independent assessment of firm quality and information on the participation of other investors, including institutional investors. At the same time, an active grey market reveals market sentiment before the application for subscription is closed. The results, which are robust to alternative model specifications, suggest that the institutional investors' decision is guided almost exclusively by firm quality while the retail investors' decision to participate in IPOs is strongly influenced by market sentiment, even in a highly transparent market where both sets of information are freely available.
LanguageEnglish
Pages207-218
Number of pages12
JournalJournal of Banking and Finance
Volume44
Early online date18 Apr 2014
DOIs
Publication statusPublished - Jul 2014

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Market sentiment
Investors
Institutional investors
Subscription
Grey market
India
Investment decision
Model specification
Retail
Alternative models
Participation

Keywords

  • initial public offerings
  • transparency
  • IPO grade
  • retail investors
  • institutional investors
  • grey market

Cite this

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title = "Firm quality or market sentiment: what matters more for IPO investors?",
abstract = "This paper investigates the investment decisions of IPO investors when equipped with information on both the quality of the firm and the market sentiment. Unique regulatory provisions allow IPO investors in India to have access to the independent assessment of firm quality and information on the participation of other investors, including institutional investors. At the same time, an active grey market reveals market sentiment before the application for subscription is closed. The results, which are robust to alternative model specifications, suggest that the institutional investors' decision is guided almost exclusively by firm quality while the retail investors' decision to participate in IPOs is strongly influenced by market sentiment, even in a highly transparent market where both sets of information are freely available.",
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Firm quality or market sentiment : what matters more for IPO investors? / Neupane, Suman; Paudyal, Krishna; Thapa, Chandra.

In: Journal of Banking and Finance, Vol. 44, 07.2014, p. 207-218.

Research output: Contribution to journalArticle

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AB - This paper investigates the investment decisions of IPO investors when equipped with information on both the quality of the firm and the market sentiment. Unique regulatory provisions allow IPO investors in India to have access to the independent assessment of firm quality and information on the participation of other investors, including institutional investors. At the same time, an active grey market reveals market sentiment before the application for subscription is closed. The results, which are robust to alternative model specifications, suggest that the institutional investors' decision is guided almost exclusively by firm quality while the retail investors' decision to participate in IPOs is strongly influenced by market sentiment, even in a highly transparent market where both sets of information are freely available.

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