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Decision Analytics for Initial Public Offerings: How Filing Sentiment Influences Stock Market Returns

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Abstract

Companies issuing stocks through an initial public offering (IPO) are obligated to publish relevant information as part of a prospectus. Besides quantitative figures from accounting, this document also contains qualitative information in the form of text. In this chapter, we analyze how sentiment in the prospectus influences future stock returns. In addition, we investigate the impact of pre-IPO sentiment in financial announcements on first-day returns. The results of our empirical analyses using 572 IPOs from US companies suggest a negative link between words linked to uncertainty and future stock market returns for up to 10 trading days. Conversely, we find that uncertainty expressed in pre-IPO announcements is positively linked to first-day stock returns. These insights have implications for research on IPOs by demonstrating that future stock returns are also driven by textual information from the prospectus and assist investors in placing their orders.

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Acknowledgment

We thank Stefan Feuerriegel for his valuable contributions.

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Correspondence to Dirk Neumann .

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Krinitz, J., Neumann, D. (2021). Decision Analytics for Initial Public Offerings: How Filing Sentiment Influences Stock Market Returns. In: , et al. Market Engineering . Springer, Cham. https://doi.org/10.1007/978-3-030-66661-3_3

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  • DOI: https://doi.org/10.1007/978-3-030-66661-3_3

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