Adverse Selection, Public Information, and Underpricing in IPOs

28 Pages Posted: 2 Aug 2006

See all articles by Tore E. Leite

Tore E. Leite

Norwegian School of Economics (NHH)

Date Written: April 13, 2007

Abstract

This paper generalizes the informational environment of the Rock model to address empirical evidence and conjectures that cannot be addressed within the standard model based on informed and uninformed investors such as underpricing being positively related to market returns observed prior to the IPO, the number of IPOs being positively related to market returns, underpricing being partly predictable based on public information, and the return to uninformed participation being negative overall but positively related to market returns observed prior to the IPO. Finally, the model suggests that a positive relation between market returns and underpricing need not represent an inefficiency in the pricing of IPOs.

Note: Previously titled "Adverse Selection in New Issues Revisited"

Keywords: Initial public offering, public information, partial adjustment, winner's curse, underpricing

JEL Classification: G24, D82

Suggested Citation

Leite, Tore E., Adverse Selection, Public Information, and Underpricing in IPOs (April 13, 2007). EFA 2004 Maastricht Meetings Paper No. 1758 . Available at SSRN: https://ssrn.com/abstract=498325 or http://dx.doi.org/10.2139/ssrn.498325

Tore E. Leite (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
N-5045 Bergen
Norway
+47 5595 9343 (Phone)
+47 5595 9841 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
465
Abstract Views
2,144
rank
61,256
PlumX Metrics