Information Acquisition Experience, Investor Sophistication, and IPO Price Pressure

Abstract

We propose a simple measure of investor sophistication based on financial statement experience derived from publicly available EDGAR log data about accounting information acquisition activity. This approach allows us to provide unique empirical evidence for the existence of attention induced price pressure effects in the cross-section of initial public offerings, i.e. that pre-IPO-week attention from likely unsophisticated investors is associated with higher initial returns and subsequent, significant price depreciations. These results are robust to various measures of abnormal post-IPO returns, attention, and sophistication. The proposed direct experience-measurement is easily replicable and potentially useful for many other questions in economics.

Keywords: information acquisition, investor sophistication, EDGAR, price pressure, initial public offering, disclosure processing costs

JEL Classification: D83, G12, G14, G32, G41