Jump to ContentJump to Main Navigation
Beyond Greed and FearUnderstanding Behavioral Finance and the Psychology of Investing$
Users without a subscription are not able to see the full content.

Hersh Shefrin

Print publication date: 2002

Print ISBN-13: 9780195161212

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0195161211.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy).date: 21 October 2018

IPOs: Initial Underpricing, Long‐Term Underperformance, and “Hot‐Issue” Markets

IPOs: Initial Underpricing, Long‐Term Underperformance, and “Hot‐Issue” Markets

Chapter:
(p.239) Chapter 17 IPOs: Initial Underpricing, Long‐Term Underperformance, and “Hot‐Issue” Markets
Source:
Beyond Greed and Fear
Author(s):

Hersh Shefrin (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0195161211.003.0017

There are three behavioral phenomena associated with initial public offerings (IPOs). These have been termed (1) initial underpricing; (2) long‐term underperformance; and (3) “hot issue” market. Initial underpricing occurs when the offer price is too low. In this case, the issue will be underpriced and its price will soar on the first trading day. But price may overshoot fundamental value. In this case, it will fall back over time, giving rise to long‐term underperformance. IPO activity also appears to move in cycles, hot and cold. A “hot issue” market is a period when investor demand for IPOs is especially high. Are the three IPO phenomena consistent with market efficiency? They are not. In a “hot issue” market, excessive optimism on the part of investors leads IPO prices to rise above fundamental value on the first trading day, and remain so for long periods. This optimism is a manifestation of heuristic‐driven bias. Investors may also be affected by other heuristics. The chapter discusses instances of similarity, betting on trends, representativeness, and regret. Two cases are used to illustrate IPO phenomena, Boston Chicken and Netscape.

Keywords:   betting on trends, hot issue markets, initial underpricing, long‐term underperformance, optimism, regret, representativeness, similarity

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .