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


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


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.

Suggested Citation

  • Todd Houge & Tim Loughran & Gerry Suchanek & Xuemin Yan, 2001. "Divergence of Opinion, Uncertainty, and the Quality of Intitial Public Offerings," Financial Management, Financial Management Association, vol. 30(4), Winter.
  • 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.
    2. Tanya Gulati & S. K. Bose & Supriyo Roy, 2017. "Short selling restrictions in 2005–2009 in Indian market and underpricing of initial public offerings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 116-135, January.
    3. Deepika Bagchee, 2009. "Investors Adjust Expectations Around Sell-Side Analyst Revisions In Ipo Recommendations," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(1), pages 53-70.
    4. repec:eee:corfin:v:46:y:2017:i:c:p:1-24 is not listed on IDEAS
    5. Pegah Dehghani & Ros Zam Zam Sapian, 2014. "Sectoral herding behavior in the aftermarket of Malaysian IPOs," Venture Capital, Taylor & Francis Journals, vol. 16(3), pages 227-246, July.
    6. Feng, Xunan & Johansson, Anders C., 2016. "Judging a Book by Its Cover: Analysts and Attention-Driven Price Patterns in China’s IPO Market," Stockholm School of Economics Asia Working Paper Series 2016-39, Stockholm School of Economics, Stockholm China Economic Research Institute.
    7. repec:ibf:ijbfre:v:11:y:2017:i:2:p:1-22 is not listed on IDEAS
    8. Tomasz Jewartowski & Joanna Lizinska, 2012. "Short- and Long-Term Performance of Polish IPOs," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(2), pages 59-75, March.
    9. Tomasz Jewartowski & Joanna Lizinska, 2012. "Short- and Long-Term Performance of Polish IPOs," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(2), pages 59-75, March.
    10. Sung C. Bae & Kiyoung Chang & Hoje Jo, 2013. "Long-Run Stock and Operating Performance of Underwriter Warrants: Evidence from Seasoned Equity Offerings," International Review of Finance, International Review of Finance Ltd., vol. 13(4), pages 473-501, December.

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