Princeton University Library Catalog
- Rajagopalan, Aditya (Adi) [Browse]
- Senior thesis
- Scheinkman, José [Browse]
- Princeton University. Department of Economics [Browse]
- Class year:
- 93 pages
- Restrictions note:
- Walk-in Access. This thesis can only be viewed on computer terminals at the Mudd Manuscript Library.
- Summary note:
- We model the effect of disagreement on short-term IPO underpricing and long-term IPO
underperformance. Given the existence of short-sales constraints and momentum traders,
sufficiently high disagreement amongst investors triggers short-term overperformance and
long-term underperformance as momentum traders magnify the effect of short-term disagreement.
We verify these predictions empirically using data for aggregate disagreement and
various measures of IPO abnormal returns, turnover, and frequency. We find that aggregate
disagreement has an increasingly positive effect on initial post-IPO abnormal returns and
turnover, and a negative effect on long-term post-IPO abnormal returns. Our results also
indicate that the effect of aggregate disagreement is being amplified by gradual information
diffusion in both the short- and long-term. This paper therefore provides a new model
combining the disagreement and information cascades hypotheses of the IPO Puzzle, and
new empirical evidence explaining the IPO Puzzle through aggregate disagreement.