A Fully-Rational Liquidity-Based Theory Of IPO Underpricing And Underperformance

Topics:
IPO
Tags:
Finance,
Financial Planning,
Financial Services,
Investment,
Investor,
IPO,
Theory
Source:
Federal Reserve Board

FREE Registration is required

Overview: The author presents a fully-rational symmetric-information model of an IPO (Initial Public Offering), and a dynamic imperfectly competitive model of trading in the IPO aftermarket. The model helps to explain IPO underpricing, underperformance, and why share allocations favor large institutional investors. In the model, underwriters need to sell a fixed number of shares at the IPO or in the aftermarket. To maximize revenue and avoid selling into the aftermarket where they can be exploited by large investors, underwriters distort share allocations towards investors with market power, and set the IPO offer price below the aftermarket trading price. Large investors who receive IPO share allocations sell them slowly afterwards to reduce their trade's price-impact.

(Is this item miscategorized? Does it need more tags? Let us know.)

Format: PDF | Size: 505KB | Date: Feb 2006 | Pages: 69

People who downloaded this item also downloaded

White Paper IPO-Related Organizational Change and Long-Term Performance
White Paper Peer Review: Raising the Bar for Audit Quality

Top results from IPO

White Paper New Insider Threat Emerges in the New Economy
White Paper A Case Study Of IPO Valuation
White Paper IPO Underpricing To Buy Holding
White Paper Differences Between European And American IPO Markets
White Paper Roadmap For An IPO: A Guide To Going Public

» View all IPO listings

advertisement
advertisement
  • Click Here
  • Click Here
  • Click Here
advertisement

Returning users: Log In Here!

Already registered on BNET, TechRepublic, or ZDNet? Simply log in.

Free Membership: Sign Up Now!

Sign up for a free membership today and get instant and unlimited access to one of the largest databases of white papers, webcasts, and casestudies anywhere. Your FREE membership allows you to:

  • Download an unlimited amount of content, including classic and current white papers, case studies, webcasts and more
  • Track content on your chosen topics of interest
  • Receive targeted email alerts when your favorite content is added
  • Save content for future reading
  • Receive our member newsletter

When you register to access this directory, you become a member of BNET. In addition, you allow us to share your information with companies that produce products or services featured in the library--so that such companies may contact you with information and offers regarding their products and services. This enables us to keep the library a free service. As a directory registrant, you will receive a complimentary subscription to the BNET member newsletter, The BNET Report. You can unsubscribe from this newsletter at any time. By clicking the Sign up button, you indicate that you agree to our Terms and Conditions and have read and understand our Privacy Policy (updated).