IPO Price, Heterogeneous Priors and Gradual Information Flows

Yu Jiang, Xianming Fang and Haofei Wang

Prague Economic Papers, 2017, vol. 2017, issue 2, 188-197

Abstract: 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.

Keywords: heterogeneous priors; gradual information flow; IPO price; probability of falling below IPO price (search for similar items in EconPapers)
JEL-codes: G02 G14 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.18267/j.pep.603

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