Prague Economic Papers 2017, 26(2):188-197 | DOI: 10.18267/j.pep.603

IPO Price, Heterogeneous Priors and Gradual Information Flows

Yu Jiang¹, Xianming Fang^2,*, Haofei Wang³

¹ Yu Jiang, Department of Finance and Insurance, Nanjing University, Nanjing, Jiangsu, China (yujiang@nju.edu.cn)

² Department of Finance and Insurance, Nanjing University, Nanjing, Jiangsu, China (fxmfxm@nju.edu.cn)

³ Shanghai Advanced Institute of Finance, Shanghai Jiaotong University, Shanghai, China (hfwang2.12@saif.sjtu.edu.cn)

This paper attempts to develop a theoretical framework that builds on heterogeneous beliefs to explain the financial anomalies related to IPO stocks. In particular, we develop a dynamic analysis framework to study the valuation of IPO price and the short-term probability of falling below IPO price based on perspectives of investors' heterogeneous priors and gradual information flow. Our study shows that the valuation of IPO price increases as the degree of heterogeneity due to investors' heterogeneous priors increases. Moreover, the short-term probability of falling below IPO price increases as the degree of investors' cognitive biases caused by gradual information flow increases.

Klíčová slova: heterogeneous priors, gradual information flow, IPO price, probability of falling below IPO price

JEL classification: G02, G14

Zveřejněno online: 8. září 2016; Zveřejněno: 1. duben 2017  Zobrazit citaci