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IPO Price, Heterogeneous Priors and Gradual Information Flows

Author

Listed:
  • Yu Jiang
  • Xianming Fang
  • Haofei Wang

Abstract

This paper attempts to develop a theoretical framework that builds on heterogeneous beliefs to explain the financial anomalies related to IPO stocks. In particular, we develop a dynamic analysis framework to study the valuation of IPO price and the short-term probability of falling below IPO price based on perspectives of investors' heterogeneous priors and gradual information flow. Our study shows that the valuation of IPO price increases as the degree of heterogeneity due to investors' heterogeneous priors increases. Moreover, the short-term probability of falling below IPO price increases as the degree of investors' cognitive biases caused by gradual information flow increases.

Suggested Citation

  • Yu Jiang & Xianming Fang & Haofei Wang, 2017. "IPO Price, Heterogeneous Priors and Gradual Information Flows," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(2), pages 188-197.
    • Handle: RePEc:prg:jnlpep:v:2017:y:2017:i:2:id:603:p:188-197
    DOI: 10.18267/j.pep.603
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    More about this item

    Keywords

    heterogeneous priors; gradual information flow; IPO price; probability of falling below IPO price;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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