Short-Sales Constraints and Aftermarket IPO Pricing

53 Pages Posted: 5 Jun 2016 Last revised: 15 Jun 2018

See all articles by Panos N. Patatoukas

Panos N. Patatoukas

University of California, Berkeley - Haas School of Business

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Annika Yu Wang

University of Houston - Bauer College of Business

Date Written: March 27, 2018

Abstract

It is well established that initial public offerings (IPOs) tend to experience positive first-day returns followed by abnormally low subsequent returns, especially around the expiration of lockup agreements. Miller’s (1977) overvaluation theory offers a unified explanation of aftermarket IPO pricing based on divergence of investor opinion about fundamental value combined with short-sales constraints. While prior studies are inconclusive with respect to the importance of short-sales constraints in the IPO aftermarket, we find robust evidence that the combination of divergence of investor opinion and short sales constraints explains IPO pricing.

Keywords: Short-Sales Constraints, Divergence of Opinion, IPO Pricing, IPO Share Lockups

JEL Classification: G12, G14, M41

Suggested Citation

Patatoukas, Panos N. and Sloan, Richard G. and Wang, Annika Yu, Short-Sales Constraints and Aftermarket IPO Pricing (March 27, 2018). 27th Annual Conference on Financial Economics and Accounting Paper. Available at SSRN: https://ssrn.com/abstract=2789879 or http://dx.doi.org/10.2139/ssrn.2789879

Panos N. Patatoukas (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

HOME PAGE: http://sites.google.com/site/panossom/

Richard G. Sloan

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Annika Yu Wang

University of Houston - Bauer College of Business

Bauer College of Business
4750 Calhoun Road
Houston, TX 77204
United States

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