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Local investor horizon clientele and IPO underpricing

Massimo Massa and Lei Zhang

Journal of Financial Markets, 2021, vol. 54, issue C

Abstract: We study how the heterogeneity in investment horizons of local institutional investors affects the IPO market. Because short-term investors prefer more liquid stocks than long-term investors do and IPO stocks have high liquidity in the aftermarket, a higher presence of local short-term investors should be related to higher IPO underpricing. We test this hypothesis by constructing a geography-based measure of “local short-term presence”, which captures the cross-sectional variations in regional investor horizon clienteles. We find that local short-term presence is strongly positively related to IPO underpricing. Our results are consistent with the view that investor-base heterogeneity affects asset returns.

Keywords: Investor horizon clientele; Local short-term presence; Illiquidity; IPO underpricing (search for similar items in EconPapers)
JEL-codes: G24 G28 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.finmar.2020.100587

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