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Seasonal affective disorder and the pricing of IPOs

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  • Steven D. Dolvin
  • Mark K. Pyles

Abstract

Purpose - It has been found that stock market returns vary seasonally with the amount of daylight, and they attribute this effect to seasonal affective disorder (SAD), which is a psychological condition that causes depression and heightened risk aversion during the fall and winter months. The goal of this study is to examine whether this effect also manifests itself in the pricing of initial public offerings (IPOs). Design/methodology/approach - The authors conduct an empirical analysis on IPO data collected over the period 1986‐2000. Specifically, we examine potential pricing differences between IPO that go public during the fall and winter months, relative to other issues. The paper begins by exploring differences on a univariate basis (i.e. testing viat‐statistics), subsequently extending the analysis by controlling for firm and offer characteristics in a multiple regression framework. Findings - The paper finds that IPOs experience higher levels of underpricing in both the fall and winter months and that offer price revisions are higher during the winter months. Both of these results are consistent with SAD influencing the IPO pricing process. Originality/value - The results suggest that behavioral issues (i.e. the emotions of buyers) may have as much of an effect on the pricing of IPOs as more traditional characteristics. Further, the results imply that firms with flexible issuance schedules should avoid going public during months affected by SAD, thereby potentially reducing the cost of issuance.

Suggested Citation

  • Steven D. Dolvin & Mark K. Pyles, 2007. "Seasonal affective disorder and the pricing of IPOs," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 6(2), pages 214-228, May.
    • Handle: RePEc:eme:rafpps:v:6:y:2007:i:2:p:214-228
    DOI: 10.1108/14757700710750865
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    Citations

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    Cited by:

    1. Lin, Mei-Chen, 2015. "Seasonal affective disorder and investors’ response to earnings news," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 211-221.
    2. Pedersen, Michael, 2019. "Anomalies in macroeconomic prediction errors–evidence from Chilean private forecasters," International Journal of Forecasting, Elsevier, vol. 35(3), pages 1100-1107.
    3. K. S. Manu & Chhavi Saini, 2020. "Valuation Analysis of Initial Public Offer (IPO): The Case of India," Paradigm, , vol. 24(1), pages 7-21, June.
    4. Kamstra, Mark J. & Kramer, Lisa A. & Levi, Maurice D., 2012. "A careful re-examination of seasonality in international stock markets: Comment on sentiment and stock returns," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 934-956.
    5. Tihana Škrinjarić & Branka Marasović & Boško Šego, 2021. "Does the Croatian Stock Market Have Seasonal Affective Disorder?," JRFM, MDPI, vol. 14(2), pages 1-16, February.
    6. Balazs Zelity, 2022. "Seasonality and Consumer Confidence," Wesleyan Economics Working Papers 2022-001, Wesleyan University, Department of Economics.
    7. Tihana Škrinjarić, 2018. "Testing for Seasonal Affective Disorder on Selected CEE and SEE Stock Markets," Risks, MDPI, vol. 6(4), pages 1-26, December.
    8. Guy Kaplanski & Haim Levy, 2017. "Seasonality in Perceived Risk: A Sentiment Effect," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-21, March.
    9. Yoichi Sekizawa & Yoko Konishi, 2021. "Are consumer confidence and asset value expectations positively associated with length of daylight?: An exploration of psychological mediators between length of daylight and seasonal asset price trans," PLOS ONE, Public Library of Science, vol. 16(1), pages 1-17, January.
    10. Gori, Leonella & Teti, Emanuele & Loi, Andrea & Dallocchio, Maurizio, 2020. "Seasonal darkness and IPO," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 494-508.
    11. Kucheev, Yury O. & Sorensson, Tomas, 2019. "The seasonality in sell-side analysts’ recommendations," Finance Research Letters, Elsevier, vol. 29(C), pages 162-168.
    12. Steven D. Dolvin & Stephanie A. Fernhaber, 2014. "Seasonal Affective Disorder and IPO underpricing: implications for young firms," Venture Capital, Taylor & Francis Journals, vol. 16(1), pages 51-68, January.
    13. Kamstra, Mark J. & Kramer, Lisa A. & Levi, Maurice D., 2009. "Is it the weather? Comment," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 578-582, March.

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