Media Sentiment and the Market Performance of IPOs: Theory and Evidence under Inquiry System

Abstract

Abstract:

This paper develops a media sentiment model under the background of inquiry system to investigate the influence mechanism of media sentiment on IPO performance. The results of the model show that media sentiment results in cognitive biases of retail investors and stimulates their market demands. Hence, the more optimistic the media sentiment is, the higher the return on the first day of IPO will be. In the long term, however, the IPO performance has a significantly negative correlation with media sentiment, showing that the effect of media sentiment on IPO first day return is temporary. At the last, this paper uses Baidu news search volume as a proxy variable for the media sentiment and tests the model according to total sample and sample of different listed section using 471 IPOs which are listed in Shanghai and Shenzhen Stock Exchange and disclose bids of investors from Nov. 2010 to Dec. 2011. We find empirical evidence in support of the model and the impact of the media sentiment on the first day of IPO return and long-term performance in the GEM market performance is more intense.

Key words: media sentiment, cognitive bias, inquiry system, IPO market performance

Chen Pengcheng, Zhou Xiaohua. Media Sentiment and the Market Performance of IPOs: Theory and Evidence under Inquiry System[J]. , 2016, 28(7): 22-30.

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