The Impact of Investor Sentiment on IPO Underpricing

Abstract

Investor sentiment is the belief formed by investors based on the expectation of future cash flow of assets and investment risk, which will affect investors' trading behavior to a certain extent. In recent years, more and more scholars have done a lot of research on IPO underpricing from the perspective of investor sentiment. It is found that investor sentiment has a certain effect on the IPO market. Taking 2,955 A-share listed stocks from 2003 to 2020 as samples, this paper uses an econometric regression model to conduct the empirical test, investigates the relationship between investor sentiment and IPO underpricing, and explores the mechanism. The results show that: (1) Investor sentiment has a significant promoting effect on IPO underpricing. Positive investor sentiment will affect the demand for new shares, promoting IPO underpricing. (2) Investor sentiment affects IPO underpricing by affecting the market turnover rate. On the first day of listing, the turnover rate plays a partial intermediary role in the path of investor sentiment affecting IPO underpricing. (3) The effect of investor sentiment on underpricing stocks with lower issue prices is less than that of stocks with higher issue prices. Keywords-investor sentiment, IPO underpricing, the turnover rate.