Short-Sales Constraints and Aftermarket IPO Pricing
53 Pages Posted: 5 Jun 2016 Last revised: 15 Jun 2018
Date Written: March 27, 2018
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: Suggested Citation