Sort of what we intuitively know; the larger the noise around an IPO the better it’s likely to do. What this paper adds is by taking a new approach to quantifying ‘noise’ it can predict more accurately other short and long term trading characteristics.
Kun Chen from the Southern University of Science in Shenzhen and Yuqin Huang and Zhenghui Ni from the Central University of Finance and Economics in Beijing examined a unique database culled from China’s #1 stock gossip site Guba Eastmoney (Guba Eastmoney) for the period 2010~2012 (over this time there were no regulatory changes in the IPO rules).
The surprise here, to me at least, was how persistent trends established early on in a stock’s life turn out to be. A large amount of positive opinion in the run up to a stock’s launch results in higher valuation, better performance and higher turnover not just on day’s 1, 2, and 3 but for an extended period. The reverse appears to be true t0o i.e. a dog at launch stays a dog for a long time.
I have a five-year rule with IPOs. Only after a stock has been listed for this length of time will I consider it for investment. I’m surprised to discover the effects of listing optimism or pessimism may not, even by that time this paper suggests, have been completely been fried off.
You’ll find the paper in full via the following link What Can Social Media Tell About IPO Performance in China?
Happy Sunday.