Why Do IPO Offer Prices Only Partially Adjust?

Quarterly Journal of Finance, Vol. 4, No. 3, 2014.

43 Pages Posted: 1 Nov 2008 Last revised: 21 Jan 2015

See all articles by Ozgur Ince

Ozgur Ince

University of South Carolina - Moore School of Business

Date Written: August 30, 2014

Abstract

This study develops a structural model of the IPO pricing process that enables the estimation of adjustment rates for public and private pricing information gathered during bookbuilding. The estimated upward adjustment rate of public information is only 21%, significantly less than the 28% rate of private information. Adjustment rates decline towards the IPO date, especially for upward adjustments. The findings contradict information acquisition theories that predict a complete adjustment to public information and highlight the inefficiency of the IPO bookbuilding mechanism in handling new information even when the information is publicly available and especially when it is favorable.

Keywords: Initial public offerings, Underpricing, Partial adjustment, Bookbuilding

JEL Classification: G24, G32, G14, C78

Suggested Citation

Ince, Ozgur S., Why Do IPO Offer Prices Only Partially Adjust? (August 30, 2014). Quarterly Journal of Finance, Vol. 4, No. 3, 2014.. Available at SSRN: https://ssrn.com/abstract=1292447 or http://dx.doi.org/10.2139/ssrn.1292447

Ozgur S. Ince (Contact Author)

University of South Carolina - Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
(803) 777-4905 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
257
Abstract Views
1,527
rank
121,638
PlumX Metrics