Social Media Emotions and IPO Returns

Abstract

I explore how investor emotions on StockTwits and Twitter affect initial public offering (IPO) returns. High pre-IPO enthusiasm is linked to greater initial returns but eventual long-term underperformance. IPOs with strong early excitement average a 29.73% initial return, but suffer a −8.22% long-term industry-adjusted return, showing a gap between early optimism and later results. Analysis of investor communication reveals that financial language and existing information influence these outcomes. There is a growing caution among frequent IPO investors, likely due to past experiences. Despite this, firms with initial high optimism continue to attract postlaunch interest, contradicting their long-term underperformance.