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Influence of Investor Sentiment on IPO Underpricing in High-tech Firms in US Hot Markets
Going public for a company is a severe driver of its development. Whenever a company decide to start IPO process, its shares should be correctly and fairly valued before. However, one of the common IPO anomalies implies huge first-day underpricing, explanations of which have laid in the field of rational economic theory for a long time. Just starting from the dot-com bubble period scientists realized that outstanding theories have low explanatory power for abnormally high first-day returns. So the next era in IPO underpricing dedicates behavioral aspects or, more precisely, investor sentiment which mostly operates in hot issue markets. We expand existing literature by constructing the industrial sentiment index and comparing with its market analogue. Given data on 530 US high-tech IPOs during hot markets, we have come to conclusions that market sentiment hugely defined by high-tech related sentiment of investors. Our findings are approved by examples from two Russian IT-companies IPOs.