Subscription Fads: Is It an Inverse Indicator for Security's Longterm Performance?

Abstract

This study provides an integrative analysis on the performance of IPOs and SEOs to investigate the influence of subscription fads. Grounded on the degree differentiation of information asymmetry in IPOs and SEOs markets, the empirical results suggest that the long-term performance of securities with subscription fads tend to underperform in both IPOs and SEOs markets whereas the fads in SEOs have less explanation power. The statistical result, in the meanwhile, remains significant as risk factor is introduced in the model. The lower explanation power of subscription fads in SEOs market indicates investors’ overreaction to SEOs is less severe. Finally, this study also demonstrates that the marketing experience in IPOs provides informative reference for companies and investors when making subscription plan in SEOs and investment decision, respectively.