Bookbuilding with Heterogeneous Investors
Posted: 24 Oct 2005
Empirical evidence suggests that better-informed investors in bookbuilt IPOs submit more informative bids and receive better allocations than do investors with less precise information. While the traditional bookbuilding argument accounts for this evidence as better-informed investors being rewarded with more favorable allocations for providing more useful information, the present paper adopts the winner's curse argument and shows that better-informed investors get better allocations by being better able to pick underpriced issues, even though in equilibrium investors' bids fully reveal their information. The paper offers empirical implications that distinguish the two arguments.
Keywords: Bookbuilding, investor heterogeneity, winner's curse, underpricing
JEL Classification: G10, G32
Suggested Citation: Suggested Citation