First Advisor

Daniel Rogers

Date of Award

5-22-2020

Document Type

Thesis

Degree Name

Bachelor of Science (B.S.) in Business Administration: Finance and University Honors

Department

Business Administration

Language

English

Subjects

Going public (Securities), Corporate governance, Finance -- Psychological aspects, Securities -- United States, Popularity, Capital assets pricing model, Popularity assets pricing model

DOI

10.15760/honors.907

Abstract

Popularity is the act of being liked. In Popularity: A Bridge Between Classical and Behavioral Finance, authors Roger Ibbotson, Thomas Idzorek, Paul Kaplan, and James Xiong (hereafter IIDX) explore the concept of Popularity in capital market theory. IIDX argue that certain companies have Popular characteristics that leads to overpricing caused by a Popularity premium. This paper begins with an overview of the historical methods of asset pricing, starting with the Capital Asset Pricing Model (CAPM). It progresses through the expansion of the model by financial theorists such as Eugene Fama and Kenneth French. Jay Ritter (1991) has documented the short-term overpricing and long-term underpricing phenomenon’s in the Initial Public Offering (IPO) market. However, the explanation for this anomaly is widely up for debate. After evaluating the prior theories, this paper argues a new explanation: short-term underpricing and long-term overpricing are a result of Popular characteristics in IPO firms. A set of twelve IPO firms across three different time periods are examined for their first-day “pop” return, along with their proceeding long-term returns. While the results of this study are inconclusive, evidence is found that Popularity may cause these short-term underpricing followed by long-term overpricing in the IPO market.

Rights

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Persistent Identifier

https://archives.pdx.edu/ds/psu/33161

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