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Divergence of Opinion, Uncertainty, and the Quality of Intitial Public Offerings

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  • Todd Houge
  • Tim Loughran
  • Gerry Suchanek
  • Xuemin Yan
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    Abstract

    We explore the relation between investor uncertainty, divergence of opinion, and the performance of initial public offerings (IPOs). We examine three opening-day proxies: the percentage opening spread, time of first trade, and flipping ratio. After controlling for issue quality, we find that all three variables provide significant explanatory power of IPO returns. Specifically, we associate a wide opening spread, late opening trade, and a high flipping ratio with poor long-run returns. The results support Miller (1977), who suggests that greater divergence of opinion or uncertainty about an IPO can generate short-run overvaluation and long-run underperformance.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 30 (2001)
    Issue (Month): 4 (Winter)
    Pages:

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    Handle: RePEc:fma:fmanag:timloughran01

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    Cited by:
    1. Boehme, Rodney & Çolak, Gönül, 2012. "Primary market characteristics and secondary market frictions of stocks," Journal of Financial Markets, Elsevier, vol. 15(2), pages 286-327.

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