A direct test of attention theory through an examination of retail investor behavior : evidence from Taiwanese IPO subscriptions

This chapter investigates attention theory by examining retail investors' true intention to purchase. Attention theory indicates that investors, and especially retail investors, typically invest in stocks about which they are aware. Previous studies test attention theory by analyzing stock price behavior or trading volume. However, stock prices and trading volume are primarily driven by institutional investors rather than retail investors. We examine investor attention using initial public offering (IPO) subscriptions in Taiwan because only retail investors are allowed to subscribe to Taiwanese IPOs. We use media coverage as a measure of passive retail investor attention and Google search volume as a measure of active retail investor attention. Our results reveal that active attention has a more profound relationship with retail investor IPO subscriptions than passive attention does. Additionally, information about the value of IPOs taken from trading prices in the pre-IPO market mitigates the effects of attention theory.