Divergence of Opinion, Uncertainty, and the Quality of Initial Public Offerings
Year: 2001
Type: article
Abstract: Using a sample of 2,025 initial public offerings (IPOs) from 1993-1996, we examine the relation between the divergence of opinion among investors and the long-run performance of IPOs. We focus on three opening-day proxies for the uncertainty about an IPO: opening bid-ask spread, the time of first trade, and the flipping ratio. After controlling for issue quality, we find all three variables provide significant predictive ability to explain long-run IPO returns. Specifically, a large opening spread, a late opening trade, and a high flipping ratio are associated with poor long-run returns. Our findings are consistent with Miller (1977), who demonstrates that divergence of opinion leads to both short-run overvaluation and long-run underperformance of IPOs.
Source: Financial Management
DOI: 10.2307/3666256
Institutions: University of Iowa, University of Notre Dame, Lehigh University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3125968772