Price Discovery in Initial Public Offerings and Role of the Lead Underwriter

Posted: 11 Oct 2010

See all articles by Reena Aggarwal

Reena Aggarwal

Georgetown University - Robert Emmett McDonough School of Business ; European Corporate Governance Institute (ECGI)

Patrick Conroy

affiliation not provided to SSRN

Date Written: 2000

Abstract

We examine the price discovery process of initial public offerings (IPOs) using a unique dataset. The first quote entered by the lead underwriter in the five-minute preopening window explains a large proportion of initial returns even for hot IPOs. Significant learning and price discovery continues to take place during these five minutes with hundreds of quotes being entered. The lead underwriter observes the quoting behavior of other market makers, particularly the wholesalers, and accordingly revises his own quotes. There is a strong positive relationship between initial returns and the time of day when trading starts in an IPO.

Keywords: IPOs, Underwriters, Price Discovery

Suggested Citation

Aggarwal, Reena and Conroy, Patrick, Price Discovery in Initial Public Offerings and Role of the Lead Underwriter (2000). Journal of Finance, Vol. 55, No. 6, pp. 2903-2922, 2000, Available at SSRN: https://ssrn.com/abstract=1690555

Reena Aggarwal (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

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Washington, DC 20057
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HOME PAGE: http://explore.georgetown.edu/people/aggarwal/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

Patrick Conroy

affiliation not provided to SSRN ( email )

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