Institutional Investor Inattention and Pricing Accuracy in Auctioned Ipos

We investigate a unique dataset of Chinese IPOs from 2009 to 2012. First, we find that institutional investors who participate in multiple IPOs on a single day suffer from limited attention and submit less accurate bids. Second, we form several proxies for investor attention capacity and show that investors with larger attention capacities are less affected by the inattention bias. Moreover, we investigate two types of distracting events and show that investors who are affected by such events bid less accurately. Furthermore, we show that investors are more affected by the inattention bias in IPOs that are more difficult to price. Third, we show that investors are more likely to submit lower bids when participating multiple IPOs. Consequently, the investors affected by the inattention bias are allocated fewer shares and earn less profit. Finally, we find that aggregate investor inattention at the IPO level significantly reduces the IPO’s pricing efficiency