The Irrational and Rational Sides of IPO Flippers

42 Pages Posted: 19 Apr 2018 Last revised: 3 May 2018

See all articles by Maher Kooli

Maher Kooli

University of Quebec at Montreal (UQAM) - School of Management (ESG)

Xiaozhou Zhou

University of Quebec at Montreal (UQAM) - School of Management (ESG)

Date Written: April 2, 2018

Abstract

Initial public offering (IPO) flippers are investors who are initially allocated shares at the offer price and immediately resell them. Using a large sample of 2003 IPOs in China from January 1995 to December 2012, we find that on average, flipping accounts for 65.92% of total negotiable shares. We also note that investors flip a greater percentage of their allocation when the IPO is hot and extra hot rather than cold, which confirms the existence of disposition effects. We also examine the impact of the first-day flipping activity on subsequent IPO performance. Using different performance measures, we confirm the negative relationship between flipping activity and IPO aftermarket performance. Specifically, we find that a 10% increase in flipping activity lowers the three-year IPO aftermarket annual performance by 3.6%. Our results are in line with the divergence of opinion hypothesis and asymmetric information.

Keywords: Flipping Activity, IPO, Long-Term Performance, Disposition Effect, Divergence of Opinion

JEL Classification: G14, G30, G32

Suggested Citation

Kooli, Maher and Zhou, Xiaozhou, The Irrational and Rational Sides of IPO Flippers (April 2, 2018). Available at SSRN: https://ssrn.com/abstract=3154661 or http://dx.doi.org/10.2139/ssrn.3154661

Maher Kooli

University of Quebec at Montreal (UQAM) - School of Management (ESG) ( email )

315 rue Sainte-Catherine Est
Montreal, Quebec H3X 3X2
Canada
514 987 3000, 2082 (Phone)
514 987 0422 (Fax)

Xiaozhou Zhou (Contact Author)

University of Quebec at Montreal (UQAM) - School of Management (ESG) ( email )

315, rue Sainte-Catherine Est
Montreal, Quebec H2X 3X2
Canada
514 987 3000 ext 0999 (Phone)

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