The Information Advantage of Underwriters in IPOs

Forthcoming, Management Science

48 Pages Posted: 17 Mar 2014 Last revised: 18 Sep 2019

See all articles by Yao-Min Chiang

Yao-Min Chiang

National Taiwan University - Department of Finance

Michelle Lowry

Drexel University

Yiming Qian

University of Connecticut

Date Written: May 19, 2018


Using a unique dataset of dealer-level trading data in bookbuilding IPOs, we find strong evidence that lead underwriter trades in IPO firms are significantly related to subsequent IPO abnormal returns. This relation is concentrated among issues in which underwriters’ information advantage is likely greater, specifically among IPOs with higher information asymmetry or subject to higher investor sentiment and among underwriters with the most industry experience. In contrast, we find no similar relation for trades by other syndicate members, who are not involved in due diligence or pricing, or around auction IPOs, which are characterized by less underwriter involvement. Our results are consistent with the joint hypothesis that underwriters of bookbuilding IPOs gain unique insight on the values of these client firms, and that they trade on this information advantage.

Keywords: IPO, underwriter, information advantage, proprietary trading, bookbuilding, auction, IPO method, investment bank

JEL Classification: G14, G15, G18, G24, G32

Suggested Citation

Chiang, Yao-Min and Lowry, Michelle B. and Qian, Yiming, The Information Advantage of Underwriters in IPOs (May 19, 2018). Forthcoming, Management Science. Available at SSRN: or

Yao-Min Chiang

National Taiwan University - Department of Finance ( email )

No.1 Sec. 4, Roosevelt Rd.
Taipei, 10605
+886 -2 -33661089 (Phone)

Michelle B. Lowry

Drexel University ( email )

Philadelphia, PA 19104
United States
215-895-6070 (Phone)

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

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