- Research Article
- Published:
Institutional trading in IPOs and post-IPOs: Value-based vs speculative
Frontiers of Business Research in China volume 5, pages 144–162 (2011)
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.
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.
Bayley, L., Lee, P. J., & Walter, T. S. 2006. IPO flipping in Australia: cross-sectional explanations. Pacific-Basin Finance Journal, 14(4): 327–348.
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.
Chemmanur, T., He, S., & Hu, G. 2009. The role of institutional investors in seasoned equity offerings. Journal of Financial Economics, 94: 384–411.
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.
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.
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.
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.
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.
Kumar, A. 2009. Who gambles in the stock market? Journal of Finance, 64(4): 1889–1933.
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.
Nagel, S. 2005. Short sales, institutional investors and the cross-section of stock returns. Journal of Financial Economics, 78(2): 277–309.
Author information
Authors and Affiliations
Corresponding author
Rights 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
Received:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11782-011-0125-4
Keywords
- IPOs
- institutional investor
- trading behavior