Public Information, IPO Price Formation, and Long-Run Returns: Japanese Evidence
Posted: 1 Nov 2009
Date Written: February 1, 2009
The price formation process of JASDAQ IPOs is more transparent than in the United States. The transparency facilitates analysis of important issues in the IPO literature — why offer prices only partially adjust to public information and adjust more fully to negative information, and why adjustments are related to initial returns. The evidence indicates that early price information conveys the underwriter’s commitment to compensate investors for acquiring and/or disclosing information. Offer prices reflect pre-IPO market values of public companies and implicit agreements between underwriters and issuers that originate well before the offering. Underadjustment of offer prices is substantially reversed in the aftermarket.
Keywords: IPO price formation, partial adjustment, underpricing, public information, long-run returns, overallotment options
JEL Classification: G24, G32, G14, G28
Suggested Citation: Suggested Citation