Does market sentiment affect IPO pricing? Online publication date: Mon, 01-Jul-2024
by Cynthia J. Campbell; Yan Du; S. Ghon Rhee; Ning Tang
International Journal of Behavioural Accounting and Finance (IJBAF), Vol. 7, No. 2, 2024
Abstract: Sentiment has been proposed as one of many possible explanations for initial public offering (IPO) underpricing. In this paper, we explore the role of market wide sentiment in IPO pricing before the start of secondary market trading. We find that the IPO initial filing price multiples are higher when the level of sentiment is higher. Interestingly, the level of sentiment does not appear to affect the IPO final offer price multiples. Instead, changes in sentiment have a significant impact on the final offer price multiples. Additionally, we find that underwriters with a higher reputation tend to incorporate the change in sentiment more aggressively than underwriters with a lower reputation.
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