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Local investor horizon clientele and IPO underpricing

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  • Massa, Massimo
  • Zhang, Lei

Abstract

We study how the heterogeneity in investment horizons of local institutional investors affects the IPO market. Because short-term investors prefer more liquid stocks than long-term investors do and IPO stocks have high liquidity in the aftermarket, a higher presence of local short-term investors should be related to higher IPO underpricing. We test this hypothesis by constructing a geography-based measure of “local short-term presence”, which captures the cross-sectional variations in regional investor horizon clienteles. We find that local short-term presence is strongly positively related to IPO underpricing. Our results are consistent with the view that investor-base heterogeneity affects asset returns.

Suggested Citation

  • Massa, Massimo & Zhang, Lei, 2021. "Local investor horizon clientele and IPO underpricing," Journal of Financial Markets, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300562
    DOI: 10.1016/j.finmar.2020.100587
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    Cited by:

    1. Florian Nagler & Giorgio Ottonello, 2022. "Inventory-Constrained Underwriters and Corporate Bond Offerings [Signalling by underpricing in the IPO market]," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 12(3), pages 639-666.

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    More about this item

    Keywords

    Investor horizon clientele; Local short-term presence; Illiquidity; IPO underpricing;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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