Investor sentiment and Pre-IPO markets

Francesca Cornelli*, David Goldreich, Alexander Ljungqvist

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

210 Scopus citations


We examine whether irrational behavior among small (retail) investors drives post-IPO prices. We use prices from the grey market (the when-issued market that precedes European IPOs) to proxy for small investors' valuations. High grey market prices (in-dicating overoptimism) are a very good predictor of first-day aftermarket prices, while low grey market prices (indicating excessive pessimism) are not. Moreover, we find long-run price reversal only following high grey market prices. This asymmetry occurs because larger (institutional) investors can choose between keeping the shares they are allocated in the IPO, and reselling them when small investors are overoptimistic.

Original languageEnglish (US)
Pages (from-to)1187-1216
Number of pages30
JournalJournal of Finance
Issue number3
StatePublished - Jun 2006

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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