Work

Does Prospect Theory Explain IPO Market Behavior?

Year: 2005

Type: article

Abstract: ABSTRACT We derive a behavioral measure of the IPO decision‐maker's satisfaction with the underwriter's performance based on Loughran and Ritter (2002) and assess its ability to explain the decision‐maker's choice among underwriters in subsequent securities offerings. Controlling for other known factors, IPO firms are less likely to switch underwriters when our behavioral measure indicates they were satisfied with the IPO underwriter's performance. Underwriters also extract higher fees for subsequent transactions involving satisfied decision‐makers. Although our tests suggest that the behavioral model has explanatory power, they do not speak directly to whether deviations from expected utility maximization determine patterns in IPO initial returns.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.2005.00779.x

Authors: ALEXANDER LJUNGQVIST, WILLIAM J. WILHELM

Institutions: Cornell University, University of Oxford, Centre for Economic Policy Research, New York University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3124767679

FWCI: 14.78

Cites: 39

Cited by: 191

Related to: 10