Short sales constraints, divergence of opinion and IPO overvaluation

摘要

In a stock market with strict short sales constraints, the divergence of opinion will affect the asset price significantly. Optimistic investors determine the asset price in the short run, which causes the overvaluation of assets. Using the dispersion of analyst forecast of first-day trading price and the turnover rate on the first trading day of IPOs in Chinese stock market from 2001 to 2007, this paper examines the relationship between the divergence of opinion and the IPO overvaluation. The results show that the higher the dispersion of analysts’ forecast, the higher the level of IPO overvaluation.