Clusters of Investors Around Initial Public Offering

Abstract

The complex networks approach has been gaining popularity in analysing investor behaviour and stock markets, but within this approach, initial public offerings (IPO) have barely been explored. We fill this gap in the literature by analysing investor clusters in the first two years after the IPO filing in the Helsinki Stock Exchange by using a statistically validated network method to infer investor links based on the co-occurrences of investors' trade timing for 14 IPO stocks. Our findings show that a rather large part of statistically similar network structures is persistent and general: they form in different securities' and persist in time for mature and IPO companies. We also find evidence of institutional herding that hints at the existence of an investor information network. * Corresponding author 1 arXiv:1905.13508v1 [q-fin.TR] 31 May 2019 trade because investors who are directly linked in the information network tend to time their transactions similarly. We follow this idea and use observations on investor-level transactions from shareholder registration data to identify the links between investors, here with a special focus on identifying investor clusters. Prior studies have investigated the structures of investor networks in different contexts [11,12,13,14,9,15], but investor clusters around IPOs have barely been explored.We address this research gap by performing a broad multistock exploratory analysis of investor clusters over 14 stocks in the first two years of their IPO. In particular, we seek to establish whether the identified investor clusters are persistent over the first two years of the IPOs and appear across multiple IPO securities, as well as with existing, mature stocks in the market. Our analysis unveils one property of a financial market: we detect statistically robust investor clusters that form simultaneously in various securities and that persist over time.Most of the earlier papers perform analyses on an aggregated category level [4,16,17,18] or concentrate on a single highly liquid stock [12,14]. Even though this type of analysis might include nearly all market participants interconnecting in a giant subsystem, the results do not generalise the collective market strategies but instead are rather stock specific. In contrast to previous research in the IPO literature, the current study is the first one on early-stage trading behaviour patterns on an individual investor account level. On the other hand, in opposition to the existing research on investor networks, in the current paper, instead of focusing of heavily capitalised stocks we analyse collective investor trading strategies that emerge after IPOs in the Helsinki Stock Exchange (HSE).With the growing amounts of data and the availability of new datasets, the network theory has become a popular approach in analysing financial complex systems (e.g., [19]). Notwithstanding the high interest in the market structure, investor networks and the complexity of investor behavioural interrelationships remain weakly explored. Indeed, high p...