Abstract
This paper examines whether intense individual investor sentiment leads to poor long-run IPO performance in the U.S. market. Using order imbalance for small trades on the IPO day to proxy for individual investor sentiment for IPOs issued between 1994 and 2002, we find that there is a negative relation between individual investor sentiment and long-run IPO performance for IPOs issued during the 1999-2000 internet bubble period but not for the non-bubble period. The empirical results are robust for returns measured both in event-time and in calendar-time. Our findings are consistent with existing theoretical models claiming that the negative sentiment-return relation applies when there is a large pool of bullish individual investors in a hot IPO market.
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