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The Role of Investor Sentiment in the
IPO Aftermarket

Sanjiv Jaggia and Satish Thosar
The Journal of Investing Winter 2012, 21 (4) 99-110; DOI: https://doi.org/10.3905/joi.2012.21.4.099
Sanjiv Jaggia
is a professor of economics and finance in Orfalea College of Business at Cal Poly State University in San Luis Obispo, CA.
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  • For correspondence: sjaggia@calpoly.edu
Satish Thosar
is a professor of finance in the School of Business at the University of Redlands in Redlands, CA.
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  • For correspondence: satish_thosar@redlands.edu
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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

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The Journal of Investing: 21 (4)
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The Role of Investor Sentiment in the
IPO Aftermarket
Sanjiv Jaggia, Satish Thosar
The Journal of Investing Nov 2012, 21 (4) 99-110; DOI: 10.3905/joi.2012.21.4.099

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The Role of Investor Sentiment in the
IPO Aftermarket
Sanjiv Jaggia, Satish Thosar
The Journal of Investing Nov 2012, 21 (4) 99-110; DOI: 10.3905/joi.2012.21.4.099
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