Abstract
Standard economic theory presumes invariant preferences. We refute this presumption on chronobiological grounds, documenting the impact of seasonal affective disorder on investors' demand for initial public offerings (IPOs). We found that seasonal mood substantially influences short-and long-run IPO performance: (a) 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); (b) by 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 (c) in the long run, the stocks issued in the cheerful periods continue to underperform (until about a year and a half) and subsequently (up to 3 years) possibly revert to the grand average of IPO underperformance. The average initial return differential between the IPOs issued in depressing and cheerful days is in the sizable order of between 5 and 10% of the offering, approaching 15-25% for the relatively less publicly exposed firms, as assessed using a database of 1,526 IPOs with average gross proceeds of $15 million.
Original language | English |
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Pages (from-to) | 131-151 |
Number of pages | 21 |
Journal | Journal of Neuroscience, Psychology, and Economics |
Volume | 5 |
Issue number | 3 |
DOIs | |
State | Published - Aug 2012 |
Keywords
- Behavioral finance
- Chronobiology
- Chronoeconomics
- Initial public offerings
- Seasonal affective disorder
- Stocks
ASJC Scopus subject areas
- Neuropsychology and Physiological Psychology
- Experimental and Cognitive Psychology
- Business, Management and Accounting (miscellaneous)
- Applied Psychology
- Economics, Econometrics and Finance (miscellaneous)
- Cognitive Neuroscience
- Behavioral Neuroscience