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Investor Sentiment and Pre-Issue Markets


  • Cornelli, Francesca
  • Goldreich, David
  • Ljungqvist, Alexander P.


What role do sentiment investors play in the pricing of newly listed stocks? We derive conditions under which we can distinguish between sentiment and rational pricing behaviour and test for the rationality of small investors’ demand for new stock issues using data from pre-issue (or ‘grey’) markets in Europe. Under sentiment, the model predicts asymmetric relations between the prices at which small investors trade new stock issues in the grey market and i) the subsequent issue price set by the investment bank, ii) prices in the early after-market, and iii) the degree of stock price reversal in the long run. Our empirical results suggest that sentiment demand is present and influences the pricing of newly listed firms.

Suggested Citation

  • Cornelli, Francesca & Goldreich, David & Ljungqvist, Alexander P., 2004. "Investor Sentiment and Pre-Issue Markets," CEPR Discussion Papers 4448, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4448

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    Cited by:

    1. Kaserer, Christoph & Diller, Christian, 2004. "What drives cash flow based European private equity returns? Fund inflows, skilled GPs and/or risk?," CEFS Working Paper Series 2004-02, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).

    More about this item


    grey markets; investor sentiment; IPOs;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General


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