New Institutional Investors in the IPO Secondary Market: Sentiment or Fundamentals?

Authors

Xudong Fu, University of Louisville
Janet Hamilton, Portland State UniversityFollow
Qin Lian, Portland State UniversityFollow
Tian Tang, University of Louisville
Qiming Wang, Willamette University

Published In

Journal of Financial Research

Document Type

Citation

Publication Date

6-10-2021

Abstract

We investigate new institutional investors that do not receive initial public offering (IPO) allocations but invest in the newly public firms after IPOs. We find that many institutions buy the stocks of IPO firms in the post-IPO secondary market over time. In contrast to retail investors who chase hot IPOs, these new institutions invest in IPO firms with lower valuations at offerings and better fundamentals. These results suggest that new institutional investors' post-IPO investment decisions are driven by publicly available information on firm fundamentals instead of investor sentiment. Long-term performance tests confirm that this trading strategy helps institutions identify better quality IPOs.

Rights

Copyright © 1999-2021 John Wiley & Sons, Inc. All rights reserved

Locate the Document

https://doi.org/10.1111/jfir.12242

DOI

10.1111/jfir.12242

Persistent Identifier

https://archives.pdx.edu/ds/psu/36102

Citation Details

Fu, X., Hamilton, J., Lian, Q., Tang, T., & Wang, Q. (2021). New institutional investors in the IPO secondary market: Sentiment or fundamentals? Journal of Financial Research, 44(2), 299–341. https://doi.org/10.1111/jfir.12242