HOW DOES INVESTOR SENTIMENT INFLUENCE IPO INITIAL RETURN AND LONG-TERM PERFORMANCE? AN AGENT-BASED COMPUTATIONAL FINANCE APPROACH

Abstract

This study builds an agent-based computational finance platform that can reproduce the basic characteristics of China’s initial public offering (IPO) market and explain its anomalies. The results of our computational experiments show that along with the increasing proportion of sentiment strategy investors (i.e., those with an information advantage) entering the market, the IPO underpricing rate also rises correspondingly. Sentiment investors usually suffer losses because of their irrational investment decisions, while sentiment strategy investors profit by preying on sentiment investors.