Investor demand for IPOs and aftermarket performance: Evidence from the Hong Kong stock market

In this study, we examine the relation between pre-offering demand and aftermarket performance of IPO firms in the Hong Kong stock market. We find that IPOs with high investor demand realize large positive initial returns but negative long-run excess returns, while IPOs with low investor demand realize negative initial returns but positive long-run excess returns. This result suggests that (1) pre-offering demand for IPOs is at least partly driven by investors' over- or underreactions to information about firms' post-issuance prospects, and (2) while high- and low-demand IPOs are not priced at their intrinsic values in early aftermarket trading, eventually their true values are reflected in their pricing.