Information Systems and e-Business Management

, Volume 16, Issue 4, pp 761–774 | Cite as

Investors’ attention and overpricing of IPO: an empirical study on China’s growth enterprise market

  • Hailiang Huang
  • Yanhong Li
  • Yingying ZhangEmail author
Original Article


In China, the Growth Enterprise Market (GEM) is a brand new market that provides an additional way of financing for firms with good growth potential. Whereas there has been a massive amount of stocks breaking on the first trading day since 2010, the risk of IPO’s overpricing in China’s GEM has drawn more and more attention in recent years. Based on the theory of behavioral finance and limited attention, investors’ attention may be a quite indicative determinant to the IPO overpricing. Accordingly, we collected data from Internet including online stock forums and search engines, then built multiple investors’ attention metrics that were distinct to the traditional metrics from the offline stock market. In the empirical study, we built regression models to dig out the determinants of IPO’s overpricing and found that the hybrid model containing both online metrics and financial metrics outperformed the others considerably. The adjusted R-square of the hybrid model containing both online metrics and financial metrics is as high as 82.8%, in contrast to 18.2% for the model containing only the financial metrics and 59.3% for that containing only investors’ attention.


Investors’ attention Text mining Growth Enterprise Market (GEM) Overpricing of IPO 



This work was supported partly by the National Science Foundation of China (NSFC No. 71601106) and Shanghai Science & Technology Innovation Project (No. 16511102900).


  1. Aggarwal RK, Krigman L, Womack KL (2002) Strategic IPO underpricing, Information momentum, and lockup expiration selling. J Financ Econ 66(1):105–137CrossRefGoogle Scholar
  2. Antweiler W, Frank MZ (2004) Is all that talk just noise? The information content of Internet stock message boards. J Financ 59(3):1259–1294CrossRefGoogle Scholar
  3. Black F (1986) Noise. J Financ 41(3):529–543CrossRefGoogle Scholar
  4. Cogliati GM, Paleari S, Vismara S (2011) IPO pricing: growth rates implied in offer prices. Ann Financ 7(1):53–82CrossRefGoogle Scholar
  5. Da Z, Engelberg J, Gao P (2011) In search of attention. J Financ 6(5):1461–1499CrossRefGoogle Scholar
  6. De Long JB, Shleifer A, Summers LH, Waldmann RJ (1990) Noise trader risk in financial markets. J Politi Econ 98(4):703–738CrossRefGoogle Scholar
  7. DellaVigna S (2007) Psychology and economics: evidence from the field. J Econ Lit 47(2):315–372 CrossRefGoogle Scholar
  8. Dimpfl T, Jank S (2016) Can Internet Search Queries Help to Predict Stock Market Volatility? Eur Financ Manag 22(2):171–192Google Scholar
  9. Engelberg J, Sasseville C, Williams J (2012) Market madness? The case of mad money. Manage Sci 58(2):351–364CrossRefGoogle Scholar
  10. Fama EF (1970) Efficient capital markets: a review of theory and empirical work. J Financ 25(2):383–417CrossRefGoogle Scholar
  11. Gao Yan (2010) What comprises IPO initial returns:Evidence from the Chinese market. Pacific-Basin Finance J 18(1):77–89Google Scholar
  12. Hsee CK, Yu F, Zhang J, Zhang Y (2003) Medium maximization. J Consum Res 30(1):1–14CrossRefGoogle Scholar
  13. Husnan S, Hanafi MM, Munandar M (2014) Price stabilization and IPO underpricing: an empirical study in the Indonesian stock exchange. J Indones Econ Bus: JIEB 29(2):129Google Scholar
  14. Ibbotson RG (1975) Price performance of common stock new issues. J Financ Econ 2(3):235–272CrossRefGoogle Scholar
  15. Kahneman D (1973) Attention and effort. Prentice-Hall, Englewood Cliffs, p 246Google Scholar
  16. Kim M, Ritter JR (1999) Valuing IPOs. J Financ Econ 53(3):409–437CrossRefGoogle Scholar
  17. Lintner G (1998) Behavioral finance: why investors make bad decisions. Plan. 13(1):7–8Google Scholar
  18. Thaler RH (ed) (2005) Advances in behavioral finance, vol 2. Princeton University PressGoogle Scholar
  19. Vlastakis N, Markellos RN (2012) Information demand and stock market volatility. J Bank Financ 36(6):1808–1821CrossRefGoogle Scholar
  20. Wysocki PD (1998) Cheap talk on the web: the determinants of postings on stock message boards. University of michigan business school working paper (98025)Google Scholar
  21. Zhou Z, Zhou J (2010) Chinese IPO activity, pricing, and market cycles. Rev Quant Financ Account 34(4):483–503CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.School of Information Management and EngineeringShanghai University of Finance and EconomicsShanghaiChina
  2. 2.Shanghai Key Laboratory of Financial Information TechnologyShanghaiChina

Personalised recommendations