The role of optimistic news stories in IPO pricing

Carey, Peter, Fang, Victor and Zhang, Hong Feng 2016, The role of optimistic news stories in IPO pricing, Journal of international financial markets, institutions and money, vol. 41, pp. 16-29, doi: 10.1016/j.intfin.2015.12.002.

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Title The role of optimistic news stories in IPO pricing
Author(s) Carey, PeterORCID iD for Carey, Peter
Fang, VictorORCID iD for Fang, Victor
Zhang, Hong FengORCID iD for Zhang, Hong Feng
Journal name Journal of international financial markets, institutions and money
Volume number 41
Start page 16
End page 29
Total pages 14
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2016-03
ISSN 1042-4431
Summary This study investigates the influence of optimistic news stories on first-day pricing of initial public offerings (IPOs) in Australia between 1995 and 2005. Unlike the United States, Australia has no quiet-period regulation limiting the dissemination of information from media before IPO listing dates. We find that optimistic news stories are negatively associated with IPO underpricing. Results from a relative valuation model show that IPOs which received positive news stories ahead of the first trading day are not overpriced relative to their industry benchmarks. These results suggest that optimistic news stories mitigate information asymmetry and adverse selection problems. However, optimistic news stories do not appear to inflate the share price on the first day of trading. Our findings suggest that regulation mandating a 'quiet period' before the commencement of trading in IPOs is neither necessary nor desirable in the Australian environment.
Language eng
DOI 10.1016/j.intfin.2015.12.002
Field of Research 140207 Financial Economics
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, Elsevier
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