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

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Listed:
  • Todd Houge
  • Tim Loughran
  • Gerry Suchanek
  • Xuemin Yan

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

  • Todd Houge & Tim Loughran & Gerry Suchanek & Xuemin Yan, 2001. "Divergence of Opinion, Uncertainty, and the Quality of Intitial Public Offerings," Financial Management, Financial Management Association, vol. 30(4), Winter.
    • Handle: RePEc:fma:fmanag:timloughran01
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