Abstract
Investors in an initial public offering (IPO) face a lack-of-information problem: They have to guess the new stock's aftermarket price. This problem poses a risk when there is no consensus in investors' pre-issue opinions, and the risk is greater when the opinions are more divergent. We model this lack-of-information problem in an IPO, where, to place a certain number of the shares, the issuer adjusts the offer price to accommodate the difference in the demand between the pre-issue market and the aftermarket. By examining a large sample of IPOs, we obtain evidence in strong support of the model's predictions for IPO underpricing and sales.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
