Skip to main content
  • Research Article
  • Published:

Institutional trading in IPOs and post-IPOs: Value-based vs speculative

Abstract

Using a unique dataset from Shanghai Stock Exchange, we study institutional trading behaviors in IPOs and post-IPOs. From the perspective of value-based or speculation, we find that, (1) institutional investors are flippers on the first day of IPOs, (2) trading by institutional investors and the active institutional investors (mutual funds or brokerage) is value-based, and (3) the net buys of institutional investors can predict the long term performance of IPO-firms and shows a negative relation with a bubble in future. Since individual investors are the opponent of institutional investors, our results mean that individuals are speculators in the market. Our study suggest that institutional investors are the sophisticated ones in the market and they can process information more efficiently, whose value-based trading can enhance market price discovery and is good for market stabilization.

References

  • Aggarwal, R. 2003. Allocation of initial public offerings and flipping activity. Journal of Financial Economics, 68(1): 111–135.

    Article  Google Scholar 

  • Badrinath, S., Kale, J., & Noe, T. 1995. Of shepherds, sheep, and the cross-autocorrelations in equity returns. Review of Financial Studies, 8(2): 401–430.

    Article  Google Scholar 

  • Bayley, L., Lee, P. J., & Walter, T. S. 2006. IPO flipping in Australia: cross-sectional explanations. Pacific-Basin Finance Journal, 14(4): 327–348.

    Article  Google Scholar 

  • Boehmer, B., Boehmer, E., & Fishe, R. P. H. 2006. Do institutions receive favorable allocations in IPOs with better long-run returns? Journal of Financial and Quantitative Analysis, 41(4): 809–828.

    Article  Google Scholar 

  • Chemmanur, T., He, S., & Hu, G. 2009. The role of institutional investors in seasoned equity offerings. Journal of Financial Economics, 94: 384–411.

    Article  Google Scholar 

  • Chemmanur, T., & Hu, G. 2009. The role of institutional investors in initial public offerings. Working paper.

  • Cohen, R. B., Gompers, P. A., & Vuolteenaho, T. 2002. Who underreacts to cash-flow news? Evidence from trading between individuals and institutions. Journal of Financial Economics, 66(2–3): 409–462.

    Article  Google Scholar 

  • Dor, A. 2004. The performance of initial public offerings and the cross section of institutional ownership. Northwestern University Finance Working Paper.

  • Ellis, K. 2006. Who trades IPOs? A close look at the first days of trading. Journal of Financial Economics, 79(2): 339–363.

    Article  Google Scholar 

  • Ellis, K., Michaely, R., & O’Hara, M. 2000. When the underwriter is the market maker: An examination of trading in the IPO aftermarket. Journal of Finance, 55(3): 1039–1074.

    Article  Google Scholar 

  • Field, L. C., & Lowry, M. 2009. Institutional versus Individual Investment in IPOs: The importance of firm fundamentals. Journal of Financial and Quantitative Analysis, 44(3): 489–516.

    Article  Google Scholar 

  • Green, T. C., & Hwang, B. H. 2009. IPOs as lotteries: Expected skewness and first-day returns. Working Paper.

  • Krigman, L., Shaw, W. H., & Womack, K. L. 1999. The persistence of IPO mispricing and the predictive power of flipping. Journal of Finance, 54(3): 1015–1044.

    Article  Google Scholar 

  • Kumar, A. 2009. Who gambles in the stock market? Journal of Finance, 64(4): 1889–1933.

    Article  Google Scholar 

  • Michaely, R., & Shaw, W. 1994. The pricing of initial public offerings: Tests of adverse-selection and signaling theories. Review of Financial Studies, 7(2): 279–319.

    Article  Google Scholar 

  • Nagel, S. 2005. Short sales, institutional investors and the cross-section of stock returns. Journal of Financial Economics, 78(2): 277–309.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Dongmin Kong.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kong, D., Shao, Y. & Huang, J. Institutional trading in IPOs and post-IPOs: Value-based vs speculative. Front. Bus. Res. China 5, 144–162 (2011). https://doi.org/10.1007/s11782-011-0125-4

Download citation

  • Received:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11782-011-0125-4

Keywords