How Much Do Reits Pay for Their Ipos?
40 Pages Posted: 6 Aug 2004
Date Written: July 2004
Previous studies document the reversal in the initial returns of REIT IPOs from overpricing in the 1980s to underpricing in the 1990s. We find that the gross spreads of REIT IPOs decreased significantly in the 1990s. In particular, there is bimodal clustering at the 6.5% and 7.0% levels. Moreover, in the 1980s approximately 94% of REIT IPOs had integer offer prices, most of which were priced at $10 and $20. However, this proportion decreased to 64% in the 1990s, which indicates the change in REIT pricing uncertainty and negotiation between issuers and underwriters. We attribute the reversal of the gross spreads and initial returns of REIT IPOs to REIT structural changes and the learning process for underwriters in setting the gross spreads and pricing the REIT IPOs as new financial products.
Keywords: REIT, IPO, underpricing, overpricing, gross spread
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