Searching for Google's Value: Using Prediction Markets to Forecast Market Capitalization Prior to an Initial Public Offering
37 Pages Posted: 2 Mar 2006 Last revised: 29 Aug 2008
Date Written: August 2008
We conducted prediction markets designed to forecast post-IPO valuations before a particularly unique IPO: Google. The prediction markets forecast Google's post-IPO market capitalization relatively accurately. While Google's auc-tion-based IPO price fell 15.3% below the first-day, closing market capitalization, the final prediction market forecast was only 4.0% above it. The forecast also accorded with the level of over-subscription in the IPO auction. Evidence available to both outsiders (from the prediction market forecasts) and insiders (through the orders in Google's auction) predicted similar degrees of underpricing. We argue that, with repetition, such markets could provide useful informa-tion for understanding the IPO process.
Keywords: Initial public offering, underpricing, asymmetric information, prediction markets
JEL Classification: C53, C93, G10, G14, G24, G32
Suggested Citation: Suggested Citation