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Private Information, Investor Sentiment, and IPO Pricing: Which Institutional Investors Are Better Informed?

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  • Kenta Funaoka
  • Yusaku Nishimura

Abstract

We provide new empirical evidence that certain institutional investors have private information that they use to profit from initial public offerings (IPOs). In this study, we analyze the bidding information related to five types of institutional investors in China’s ChiNext market to examine the impact of private information and investor sentiment on first-day IPO returns. The results show that private information and institutional investor sentiment are positively correlated with initial returns. The analysis of the different institutional sectors shows that some securities companies may profit from IPOs by using private information. It was also found that qualified foreign institutional investors (QFII) may be at an informational disadvantage on the Chinese stock market.

Suggested Citation

  • Kenta Funaoka & Yusaku Nishimura, 2020. "Private Information, Investor Sentiment, and IPO Pricing: Which Institutional Investors Are Better Informed?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1722-1736, July.
    • Handle: RePEc:mes:emfitr:v:55:y:2020:i:8:p:1722-1736
    DOI: 10.1080/1540496X.2018.1484355
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    Cited by:

    1. Ping Wei & Xiaodan Mao & Xiaohong Chen, 2020. "Institutional investors' attention to environmental information, trading strategies, and market impacts: Evidence from China," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 566-591, February.
    2. Narayan, Paresh Kumar & Narayan, Seema, 2021. "Do opinion polls on government preference influence stock returns?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    3. Alexandre Ripamonti & Raphael Videira & Denis Ichimura, 2020. "Asymmetric information and daily stock prices in Brazil," Estudios Gerenciales, Universidad Icesi, vol. 36(157), pages 465-472, December.

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