FIN-04-011 |
NYU Stern School of Business |
May 2004
Francesca Cornelli, David Goldreich and Alexander Ljungqvist
ABSTRACT
What role do sentiment investors play in the pricing of newly listed stocks? We derive conditions under which we can
distinguish between sentiment and rational pricing behavior and test for the rationality of small investors' demand
for new stock issues using data from pre-issue (or 'grey') markets in Europe. Under sentiment, the model predicts
assymetric relations between the prices at which small investors trade new stock issues in the grey market and i) the
subsequent issue price set by the investment back, ii) prices in the early after-market, and iii) the degree of stock
price reversal in the long run. Our empirical results suggest that sentiment demand is present and influences the
pricing of newly listed firms.
Francesca Cornelli
Institution: London Business School
David Goldreich
Institution: London Business School
Alexander Ljungqvist
Institution: Stern School of Business, New York University
Phone: (212) 998-0304
Fax: (212) 995-4233
Email: aljungqv@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~aljungqv/
To download a copy of this paper click here
To request a copy of this paper click here
|