Bookbuilding with Heterogeneous Investors

Posted: 24 Oct 2005

See all articles by Tore E. Leite

Tore E. Leite

Norwegian School of Economics (NHH)

Abstract

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

Leite, Tore E., Bookbuilding with Heterogeneous Investors. Journal of Financial Intermediation, Vol. 15, No. 2, pp. 235-253, 2006. Available at SSRN: https://ssrn.com/abstract=825385

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)

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