IPO Pricing: Informational Inefficiency and Misallocation in Capital Market

32 Pages Posted: 1 Dec 2008

See all articles by K. V. Bhanu Murthy

K. V. Bhanu Murthy

University of Delhi - School of Economics - Commerce Department

Amit Singh

affiliation not provided to SSRN

Date Written: November 18, 2008

Abstract

Extant literature is not unequivocal about IPO pricing. It is almost silent about the misallocation in the capital market. IPO pricing is mostly argued from the point of view of listing gains/losses.

This paper seeks to explain the process and outcomes of IPO pricing in the capital market with the help of a basic model. With the help of certain cases it attempts to show that asymmetric information and informational inefficiency lead to misallocation of capital, adverse selection costs and moral hazard costs.

Keywords: Initial public offerings, Book-building, Price discovery, True Price, Misallocation, Informational inefficiency

JEL Classification: G2, G3, K2

Suggested Citation

Murthy, K. V. Bhanu and Singh, Amit, IPO Pricing: Informational Inefficiency and Misallocation in Capital Market (November 18, 2008). Available at SSRN: https://ssrn.com/abstract=1303409 or http://dx.doi.org/10.2139/ssrn.1303409

K. V. Bhanu Murthy (Contact Author)

University of Delhi - School of Economics - Commerce Department ( email )

59 Vaishali Enclave
Pitampura
Delhi, 110034
India
+91 11 27667891 (Phone)

Amit Singh

affiliation not provided to SSRN ( email )

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