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RESEARCH IN PROGRESS Why Do People Invest in IPOs? A Test of Information and Utility-based Explanations (w/ M. Mercer). Why do people invest in IPO stocks despite the well-documented underperformance of IPOs relative to other investments? We identify and test two behavioral explanations, an information explanation and a utility explanation. The information explanation suggests that investors believe that IPOs perform better than they actually do, and that these misperceptions drive their willingness to invest. The utility explanation suggests that investors derive utility from non-monetary factors associated with owning IPOs, and that these considerations drive their IPO purchases. Preliminary results from our behavioral experiments support a utility-based explanation. |
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