IPOs as Lotteries: Skewness Preference and First-Day Returns

Management Science (Special Issue: Behavioral Economics and Finance), Forthcoming

28 Pages Posted: 9 Apr 2009 Last revised: 24 Jun 2011

See all articles by T. Clifton Green

T. Clifton Green

Emory University - Department of Finance

Byoung-Hyoun Hwang

Cornell University - Dyson School of Applied Economics and Management; Korea University - Department of Finance

Date Written: June 24, 2011

Abstract

We find that IPOs with high expected skewness experience significantly greater first-day returns. The skewness effect is stronger during periods of high investor sentiment and is related to differences in skewness across industries as well as time-series variation in the level of skewness in the market. IPOs with high expected skewness earn more negative abnormal returns in the following one to five years. High expected skewness is also associated with a higher fraction of small-sized trades on the first day of trading, which is consistent with a greater shift in holdings from institutions to individuals. The results suggest that first-day IPO returns are related to a preference for skewness.

Keywords: Lotteries, Gambling, Skewness Preferences, IPO Underpricing

JEL Classification: G11, G12, G14

Suggested Citation

Green, T. Clifton and Hwang, Byoung-Hyoun, IPOs as Lotteries: Skewness Preference and First-Day Returns (June 24, 2011). Management Science (Special Issue: Behavioral Economics and Finance), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1374993

T. Clifton Green (Contact Author)

Emory University - Department of Finance ( email )

1300 Clifton Rd.
Atlanta, GA 30322-2710
United States
404-727-5167 (Phone)
404-727-5238 (Fax)

Byoung-Hyoun Hwang

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

HOME PAGE: http://www.bhwang.com

Korea University - Department of Finance

Seoul, 136-701
United States

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