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The role of optimistic news stories in IPO pricing

Author

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  • Carey, Peter
  • Fang, Victor
  • Zhang, Hong Feng
Abstract
This study investigates the influence of optimistic news stories on first-day pricing of initial public offerings (IPOs) in Australia between 1995 and 2005. Unlike the United States, Australia has no quiet-period regulation limiting the dissemination of information from media before IPO listing dates. We find that optimistic news stories are negatively associated with IPO underpricing. Results from a relative valuation model show that IPOs which received positive news stories ahead of the first trading day are not overpriced relative to their industry benchmarks. These results suggest that optimistic news stories mitigate information asymmetry and adverse selection problems. However, optimistic news stories do not appear to inflate the share price on the first day of trading. Our findings suggest that regulation mandating a ‘quiet period’ before the commencement of trading in IPOs is neither necessary nor desirable in the Australian environment.

Suggested Citation

  • Carey, Peter & Fang, Victor & Zhang, Hong Feng, 2016. "The role of optimistic news stories in IPO pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 16-29.
    • Handle: RePEc:eee:intfin:v:41:y:2016:i:c:p:16-29
    DOI: 10.1016/j.intfin.2015.12.002
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    5. Ding, Rong & Hou, Wenxuan & Liu, Yue (Lucy) & Zhang, John Ziyang, 2018. "Media censorship and stock price: Evidence from the foreign share discount in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 55(C), pages 112-133.
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    9. Aleksandar Zdravkov Vasilev, 2021. "How Quantitatively Important are the Shocks to the Time Endowment for Business Cycle Fluctuations? Lessons Learnt From Bulgaria (1999-2018)," Notas Económicas, Faculty of Economics, University of Coimbra, issue 52, pages 99-112, july.

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