Divergence of Opinion, Uncertainty, and the Quality of Initial Public Offerings

Financial Management, Vol. 30, No. 4, Winter 2001

Posted: 10 Dec 2001

See all articles by Todd Houge

Todd Houge

University of Iowa

Tim Loughran

University of Notre Dame

Xuemin Sterling Yan

University of Missouri - Columbia

Gerry Suchanek

University of Iowa - Department of Finance

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Abstract

We explore the relation between investor uncertainty, divergence of opinion, and the performance of initial public offerings (IPOs). We examine three opening-day proxies: the percentage opening spread, time of first trade, and flipping ratio. After controlling for issue quality, we find that all three variables provide significant explanatory power of IPO returns. Specifically, we associate a wide opening spread, late opening trade, and a high flipping ratio with poor long-run returns. The results support Miller (1977), who suggests that greater divergence of opinion or uncertainty about an IPO can generate short-run overvaluation and long-run underperformance.

Suggested Citation

Houge, Todd and Loughran, Tim and Yan, Xuemin Sterling and Suchanek, Gerry, Divergence of Opinion, Uncertainty, and the Quality of Initial Public Offerings. Financial Management, Vol. 30, No. 4, Winter 2001, Available at SSRN: https://ssrn.com/abstract=292982

Todd Houge

University of Iowa ( email )

Henry B. Tippie College of Business
Department of Finance, S288 PBB
Iowa City, IA 52242-1994
United States
319-335-3754 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/thouge

Tim Loughran (Contact Author)

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Xuemin Sterling Yan

University of Missouri - Columbia ( email )

Robert J. Trulaske Sr. College of Business
427 Cornell Hall
Columbia, MO 65211-2600
United States
573-884-9708 (Phone)
573-884-6296 (Fax)

HOME PAGE: http://business.missouri.edu/yanx/

Gerry Suchanek

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

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