Investor sentiment and IPO pricing during pre-market and aftermarket periods: Evidence from Hong Kong

Using a sample of 293 IPOs in Hong Kong, we separately measure pre-market and aftermarket sentiments and examine their impact on IPO pricing in a two-stage framework. We find that underwriters only partially adjust offer price to reflect pre-market sentiment and money left on the table is positively related to the deterioration of investor sentiment in the aftermarket period. We also show that aftermarket sentiment causes a further price run-up in the secondary market. Overall, our findings suggest that institutional investors play an important role of re-distributing shares in the secondary market and underwriters take into consideration of investor sentiment in pricing IPOs during pre-market and aftermarket periods.