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Does Sentiment Drive Retail Trader’s love for IPO

September 3, 2009

Daniel Dorn has published a paper in the February issue of Journal of Financial  and Quantitative Analysis , brought out jointly by Michael G. Foster’s School of Business, UW and Cambridge Press.

The paper is titled, “Does Sentiment affect the Retail Demand for IPO” and talks about the German markets and market participants of Bourses-Zeitung.

Of particular relevance of this paper, is the market in current times when a fresh lease of IPO has once again hit the market. It started with Adani Power, NHPC,Jindal Cortex, etc. Does that tell something to me?

Yes. And that is, never ever subscribe for IPOs. Basically because, a. I am a contrarian, hence if retail loves IPO, then by definition, I hate it. b. IPO with its issue price/band is being set by a bunch of underwriters who know nothing more about the business than, their own arse. And retailers too buy in the entire frenzy and always are found to hit on the upper band of the range. Now it becomes a Keynesian Beauty Contest. Your chances of your price betterring others, depends on your perception of the average perception of the average perception of the true value. So the entire equilibrium shifts to the upper band of the range, to maximise one’s chances of being issued. Which, I say is pure bunkum.  Hence, I stay away from any security which doesnt have a chart. 🙂

Anyway, enough!

Does Sentiment Affect the Retail Demand For IPO – Daniel Dorn

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