Investor sentiment and IPO pricing during pre-market and aftermarket periods: Evidence from Hong Kong

Article history: Received 28 August 2012 Accepted 22 January 2013 Available online 31 January 2013 Using a sample of 293 IPOs in Hong Kong, we separately measure pre-market and aftermarket sentiments and examine their impact on IPO pricing in a two-stage framework. We find that underwriters only partially adjust offer price to reflect pre-market sentiment and money left on the table is positively related to the deterioration of investor sentiment in the aftermarket period. We also show that aftermarket sentiment causes a further price run-up in the secondary market. Overall, our findings suggest that institutional investors play an important role of re-distributing shares in the secondary market and underwriters take into consideration of investor sentiment in pricing IPOs during pre-market and aftermarket periods. © 2013 Elsevier B.V. All rights reserved. JEL classification: G02 G14