Divergence of opinion and initial public offerings

This article analyzes several IPO patterns in the framework of divergence of opinion. Considering a new industry with few publicly traded companies, the investors in this IPO market do not initially have complete knowledge about the industry, but may learn from other IPOs in the sector. Our model shows that the equilibrium is consistent with empirical evidence documented for IPO underpricing and hot issue markets. We also characterize the association between share overhang, trading volume, and IPO prices. Furthermore, we discuss the decision of going public, analyst coverage, and IPO lockup expiration in the presence of divergent opinions.