Momentum Investing: The Case of High-Tech Ipos
20 Pages Posted: 2 Feb 2004
We document significant momentum effects in the high-tech IPO aftermarket beyond the initial (underpricing) run-up. Cumulative market-adjusted returns (CMARs) reveal a striking pattern. A local peak of just over 10 percent is reached around 20 trading days post-IPO coinciding with the expiry of the "quiet period". A global peak (of about 33 percent) is reached after 105 trading days. The CMAR decays fairly rapidly thereafter possibly in anticipation of the expiry of the six-month lockup period. Further, we find strong evidence of a linkage between technical ex-ante observable variables and the momentum build-up. We conjecture that visceral factors may at least partially underlie the investor behavior that gives rise to the bubble-like CMAR pattern.
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