Do Investors Overreact to the Result of Initial Public Offering Subscriptions?

Abstract

In the initial public offerings (IPOs) market, an environment with high information
asymmetry, subscription results provide concrete data that serve as a decision reference for investors. However, according to Welch (1992), who introduced the information cascade concept, this type of herd behavior can drive market demand to extremes. To examine investor overreactions to subscription results, this study proposed an assessment of the transaction-oriented framework of IPOs first-day openings to identify the intervening effect that subscription results have on investment decisions. Empirical evidence of transaction behavior shows that investors place greater emphasis on subscription results compared to the
fundamental conditions of the issuing company. Although performance during the initial listing period was consistent with the investor herding direction, samples with subscription demand-guided transactions exhibited overreaction in the long term. By contrast, the phenomenon of overreaction was not observed in samples with first-day opening performances that were driven by transactions guided by other types of information.