Textual Information and IPO Underpricing: A Machine Learning Approach

49 Pages Posted: 29 Dec 2020

See all articles by Dr. Apostolos G. Katsafados

Dr. Apostolos G. Katsafados

Athens University of Economics and Business - Department of Accounting and Finance

Ion Androutsopoulos

Athens University of Economics and Business

Ilias Chalkidis

Athens University of Economics and Business

Emmanouel Fergadiotis

Athens University of Economics and Business

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School

Date Written: October 27, 2020

Abstract

This study examines the predictive power of textual information from S-1 filings in explaining IPO underpricing. Our empirical approach differs from previous research, as we utilize several machine learning algorithms to predict whether an IPO will be underpriced, or not. We analyze a large sample of 2,481 U.S. IPOs from 1997 to 2016, and we find that textual information can effectively complement traditional financial variables in terms of prediction accuracy. In fact, models that use both textual data and financial variables as inputs have superior performance compared to models using a single type of input. We attribute our findings to the fact that textual information can reduce the ex-ante valuation uncertainty of IPO firms, thus leading to more accurate estimates.

Keywords: Initial Public Offerings, First-Day Returns, Machine Learning, Natural Language Processing

JEL Classification: C63, G12, G14, G40

Suggested Citation

Katsafados, Dr. Apostolos G. and Androutsopoulos, Ion and Chalkidis, Ilias and Fergadiotis, Emmanouel and Leledakis, George N. and Pyrgiotakis, Emmanouil G., Textual Information and IPO Underpricing: A Machine Learning Approach (October 27, 2020). Available at SSRN: https://ssrn.com/abstract=3720213 or http://dx.doi.org/10.2139/ssrn.3720213

Dr. Apostolos G. Katsafados

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Ion Androutsopoulos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Ilias Chalkidis

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Emmanouel Fergadiotis

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

George N. Leledakis (Contact Author)

Athens University of Economics and Business, School of Business, Department of Accounting and Finance ( email )

76 Patission Str.
Athens, 104 34
Greece
+30 210 8203 459 (Phone)
+30 210 8228 816 (Fax)

HOME PAGE: http://www.aueb.gr/en/faculty_page/leledakis-georgios

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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