Local investor horizon clientele and IPO underpricing

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Article number100587
Journal / PublicationJournal of Financial Markets
Online published28 Jul 2020
Publication statusPublished - Jun 2021


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.

Research Area(s)

  • Investor horizon clientele, Local short-term presence, Illiquidity, IPO underpricing

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