When Chronobiology Met Economics - Seasonal Affective Impact on the Demand for IPOs
37 Pages Posted: 9 Nov 2009
Date Written: November 9, 2009
Standard economic theory presumes invariant preferences. We refute this presumption on chronobiological grounds, documenting seasonal affective impact on investors’ demand for Initial Public Offerings (IPOs). We find that seasonal mood substantially influences short-, mid-, and long-run IPO performance: (i) examining IPO first trading days indicates that in the short run, stocks issued in short, decreasing, photoperiods, i.e., days associated with depressing daylight conditions, earn lower returns than stocks issued in long, increasing, photoperiods, i.e., cheerful days; (ii) by the mid run (up to a quarter of a year), the stocks’ cum-initial-returns are equated, implying that the short-run initial excess returns of the stocks issued in the cheerful periods are fully absorbed by subsequent performance; and (iii) in the long run, the stocks issued in the cheerful periods continue to underperform (till about a year-and-a-half) and subsequently (up to three years) possibly revert to the grand average of IPO underperformance. The average return differential between the IPOs issued in depressing and cheerful days is in the sizable order of 5% to 10% of the offering, approaching 15% to 25% for the relatively less publicly exposed firms, as assessed over a database of 1,526 IPOs with average gross proceeds of $15 million.
Keywords: Behavioral Finance, Capital Markets, Chronobiology, Chrono-Decisionmaking, Chronoeconomics, Decision Making, Initial Public Offerings, Mood, Seasonal Affective Disorder, Weather, Winter Blues
JEL Classification: D03, D44, D81, D84, G14
Suggested Citation: Suggested Citation