Underpricing phenomenon has intrigued academics and practitioners over the past three
decades, and has generated considerable research trying to clarify and to understand
this short run puzzle: asymmetric information theories, IPO market efficiency theories and
behavioral and sentiment approach. In this study, I regroup in the same model the most
important explanations advanced earlier to determine which of these explanations
characterizes best the data in the context of a unified framework, with a contribution in the
behavioral approach. I use a direct measure of investors’ sentiment obtained from the survey
data of AAII and II, and I distinguish between the sentiments of the two types of investors:
individual and institutional investors.
Sentiment is a primary driver of underpricing and a relevant explanation to this anomaly.
Moreover, individual investors are those driving the first day closing prices and are more
conducting the short run IPO puzzle than the institutional investors.