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Judging a book by its cover: Analysts and attention-driven price patterns in China's IPO market

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  • Feng, Xunan
  • Johansson, Anders C.
  • Wei, Dengxi

Abstract

This study investigates the effect of analyst coverage in the primary market on IPO performance. Using a novel data set on analyst coverage in China's IPO Market, we find that the number of analysts covering a firm is positively associated with IPO initial returns. We also show that analyst coverage is positively related to small trading activities during the first trading day. Instrument variable analysis and other robustness tests provide consistent estimates. Additional analysis suggests that analysts attract the attention of individual investors, who then drive IPO initial returns and long-term price reversals in the post-IPO market. These findings contradict the argument that analysts reduce information asymmetry and instead support the attention hypothesis.

Suggested Citation

  • Feng, Xunan & Johansson, Anders C. & Wei, Dengxi, 2023. "Judging a book by its cover: Analysts and attention-driven price patterns in China's IPO market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:pacfin:v:78:y:2023:i:c:s0927538x22002086
    DOI: 10.1016/j.pacfin.2022.101913
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    More about this item

    Keywords

    Attention; Investor behavior; Behavioral biases; Analyst coverage; Initial public offerings; China;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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