Are Korea individual investors irrational in initial public offering (IPO) market? An explanation from the winner’s curse perspective

Individual investors are often regarded as irrational sentiment whose investment behaviour is affected by psychological factors. This study measures the actual return of individual who participated in initial price offering (IPO) stock Korean market from short-term and long-term perspective investigates relationship with IPO characteristics that affect investors. Even though underpricing stocks on first day listing average reached 31% over past 13 years, earned very little investment. The market-adjusted was about −0.5%, even if they held for one year after listing, it only 3.4%. so-called winner’s curse, which allocated relatively many overvalued appears to be present market. allocation depends several factors reflect investors’ sentiment, such performance previous IPOs, industrial returns, institutional intent, size, an upward revision offer price, issuing firm’s financial soundness. It found higher rate, lower trading day, confirming curse risk However, long run, a reversal returns observed, high rates rose. In order mitigate risk, desirable reform pricing mechanisms rules way reduces asymmetry information between reflects subscription demand