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The Demand for Stocks: An Analysis of IPO Auctions

25 Pages Posted: 27 Jun 1997  

Shmuel Kandel (deceased)

Deceased

Oded Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship; University of Pennsylvania - The Wharton School

Avi Wohl

Tel Aviv University - Coller School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: 1997

Abstract

This paper analyzes a unique data set of IPOs that were conducted as non-discriminatory (i.e., uniform price) auctions. Our data include the full demand schedules for auctioned IPOs conducted in Israel. To the best of our knowledge, this is the first time the whole demand schedule for any asset is described and analyzed. We show that all demand schedules are relatively flat around the auction clearing price: The average demand elasticity at the auction-clearing price is 37. We find that the elasticity of the demand is high when the return distribution of the issued security contains a large systematic component and is low when the return distribution contains a large unique component. We also find a significant average abnormal return of 4.5% on the first trading day and a positive correlation between the first-day abnormal return and the elasticity of demand. We offer an explanation for this phenomena based on the information revealed in the auction.

JEL Classification: G12, G14

Suggested Citation

Kandel (deceased), Shmuel and Sarig, Oded and Wohl, Avi, The Demand for Stocks: An Analysis of IPO Auctions (1997). Available at SSRN: https://ssrn.com/abstract=36140 or http://dx.doi.org/10.2139/ssrn.36140

Oded H. Sarig

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Avi Wohl

Tel Aviv University - Coller School of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 6409051 (Phone)

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