Engineering
3 years ago

IPO Prospectus Readability Predicts Underpriced Stocks, Boosting Investor Returns

Journal of Applied Business and Economics
IPO Underpricing and Prospectus Readability: A Machine Learning Approach
Christophor Sai Kit Tsui, Kevin Chi Keung Li

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The study looked at how easy it is to read IPO documents and how this relates to underpricing in the Hong Kong Stock Exchange. By using a machine learning method called gradient boost decision tree, the researchers found that the readability of different sections in the IPO prospectus can help identify underpriced IPOs. They also discovered that certain indicators are important for spotting underpriced IPOs.