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Beyond the hype: Understanding IPO (over)valuation

Author

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  • Zoran Filipovic

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Biljana Seistrajkova

Abstract

IPOs frequently exhibit substantial price gains, which tend to diminish over time. We examine this phenomenon by focusing on the behavior of sophisticated and well-informedmarket participants, specifically short sellers and stock analysts. Our findings suggest thatfirst-day closing prices often exceed fundamental values, driven by attention and sentimentfueled buying pressure. Short sellers exploit these valuation distortions, likely at the expense of optimistic individual investors. Subsequently, analysts issue relatively conservative initial stock recommendations, contributing to a long-term decline in stock prices.Overall, waiting for post-IPO enthusiasm to subside may help investors avoid the overvaluation inherent in newly listed stock

Suggested Citation

  • Zoran Filipovic & Biljana Seistrajkova, 2024. "Beyond the hype: Understanding IPO (over)valuation," Working Papers hal-04843500, HAL.
    • Handle: RePEc:hal:wpaper:hal-04843500
    Note: View the original document on HAL open archive server: https://hal.science/hal-04843500v1
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