Superstition and IPO initial return

Abstract

In Chinese culture, people refer to the Chinese Almanac (or "Huang Li") when they decide whether it is a lucky or unlucky day for many important events, including wedding ceremonies, funerals, and business decisions. I examine the effect of the Chinese Almanac on financial markets. More specifically, I test whether an Initial Public Offering (IPO) listed on an unlucky date has a lower IPO initial return. Using 1,799 China IPOs during the period 1996-2012, I find that IPOs listed on unlucky days experience significantly lower IPO initial returns compared to IPOs listed on all the other days. I use placebo tests, propensity score matching, and Heckman selection model to address the endogeneity concerns. I find that the finding is robust across different robustness checks and endogeneity tests. The negative effect of unlucky is not explained by the reason that IPOs listed on an unlucky day has bad future accounting performances. Besides, I show that managers do not avoid listing on an unlucky day, implying that the negative effect of unlucky is mainly caused by investor's superstition rather than manager's superstition. I find that the effect of superstition on IPO initial return is more pronounced when investors have a perception of high investment risk, strong superstitious beliefs, and are highly irrational. Further analysis shows that there is no statistically significant difference in the long-run one-, two- and three- year buy holding (abnormal) return between IPOs listed on unlucky days and IPOs listed on all other days, which means that investors in the financial market gradually correct the mispricing caused by superstition. Overall, this paper sheds new insight into how the folk model, more specifically calendar superstition, affects investors' trading behavior in financial markets with a high participation rate of retail investors and a long history of superstition.