A Study on the Impact of Investor Sentiment on Initial Public Offering Underpricing

The phenomenon of Initial Public Offering underpricing is present in nearly every country or region with a stock market. To explain this occurrence, Western scholars have proposed a range of theoretical hypotheses, though these theories often have weak explanatory power and exhibit certain limitations. As research in behavioral finance has deepened, scholars have found that investor sentiment is a key factor influencing IPO underpricing. This paper provides a detailed analysis of the definition and measurement methods of investor sentiment, summarizes the fundamental concepts and traditional theoretical explanations of IPO underpricing, and incorporates extensive empirical studies to demonstrate how investor sentiment impacts the degree of IPO underpricing. The research reveals that high investor sentiment typically leads to greater IPO underpricing, whereas low sentiment may decrease underpricing. This paper also reviews existing research findings and outlines current limitations, proposing possible future research directions. It suggests that to better understand and predict IPO underpricing, future studies must account for the dynamics of investor sentiment in varying market environments.