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.