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Abstract
This article uses two price signals on the cusp of an IPO, price revision (change from pre-offer to offer price) and initial return (change from offer to market open price), as proxies of investor sentiment, which appears to have potent and lingering effects over a six-month aftermarket window. For instance, firms that rank high on our investor optimism scale exhibit considerable initial price momentum and sharp reversals. The article shows that a mechanical trading strategy designed to exploit aftermarket patterns generates economically significant risk-adjusted returns compared to a buy-andhold benchmark. Robustness checks indicate that it is important to implement the strategy as early as possible and the key driver is the serial dependence in aftermarket returns.
TOPICS: Portfolio construction, equity portfolio management, passive strategies
- © 2012 Pageant Media Ltd
Don’t have access? Click here to request a demo
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US and Overseas: +1 646-931-9045
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