Retail Investor Attention and IPO Valuation

Forthcoming in European Financial Management

46 Pages Posted: 5 Jul 2016 Last revised: 10 Nov 2016

See all articles by Hugh M. J. Colaco

Hugh M. J. Colaco

Aston Business School

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group

Shantaram P. Hegde

University of Connecticut - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2016

Abstract

Given restrictions placed on communication with prospective investors, retail investor attention can help firms/underwriters with the task of initially valuing an IPO. Using Google search volume to proxy for retail investor attention, we find that the presence of and an increase in retail attention following initial filing but prior to initial pricing are positively related to initial valuations. Our results are robust to alternative matching methods to identify our matched sample of non-IPO firms and to including several controls for institutional demand. We conclude that retail investor attention plays a critical role in the early stages of IPO valuation.

Keywords: initial public offering; equity valuation; retail investor; investor attention

JEL Classification: G30, G32

Suggested Citation

Colaco, Hugh M. J. and De Cesari, Amedeo and Hegde, Shantaram P., Retail Investor Attention and IPO Valuation (November 7, 2016). Forthcoming in European Financial Management. Available at SSRN: https://ssrn.com/abstract=2804634 or http://dx.doi.org/10.2139/ssrn.2804634

Hugh M. J. Colaco (Contact Author)

Aston Business School ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom
+44 (0)121 204 3193 (Phone)

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group ( email )

Crawford House
Booth Street East
Manchester, M15 6PB
United Kingdom
+44 (0) 161 2754298 (Phone)

Shantaram P. Hegde

University of Connecticut - School of Business ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5135 (Phone)

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