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Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?

Published online by Cambridge University Press:  25 October 2018

Umit Ozmel ,
Timothy E. Trombley  and
M. Deniz Yavuz
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Abstract

We investigate whether access to information prior to an initial public offering (IPO) generates a trading advantage after the IPO. We find that limited partners (LPs) of lead venture capital funds obtain high returns when they invest in newly listed stocks backed by their funds. These returns are not explained by LPs’ differing stock-picking abilities, and they are higher when LPs’ information advantage over the public is higher. LPs are more likely to invest if they have an information advantage, and access to information eliminates the familiarity bias that they display otherwise.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 1 , February 2019 , pp. 303 - 334
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We are grateful for comments from an anonymous referee, Lauren Cohen, Jennifer Conrad, Michael Ewens, Mara Faccio, Oleg Gredil, Huseyin Gulen, Jarrad Harford (the editor), Jiekun Huang, Byoung-Hyoun Hwang, Zoran Ivković, Laura Lindsey, John McConnell, Raj Nahata, Manju Puri, Moon Song, Rene Stulz, Sunil Wahal, and seminar participants at the 2016 Western Finance Association Meetings, the 2016 York University CFA Institute–Finance Research Letters–Journal of International Financial Markets, Institutions, and Money (CFA-FRL-JIFMIM) Financial Markets Conference, the 2016 Financial Management Association Annual Meeting, the 2015 Michigan State University Federal Credit Union Conference, Miami University, Purdue University, San Diego State University, and the University of Cincinnati.

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