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

See all articles by Joyce E. Berg

Joyce E. Berg

University of Iowa - Henry B. Tippie College of Business

George R. Neumann

University of Iowa - Henry B. Tippie College of Business - Department of Economics

Thomas Rietz

University of Iowa - Henry B. Tippie College of Business

Date Written: August 2008

Abstract

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

Berg, Joyce E. and Neumann, George R. and Rietz, Thomas A., Searching for Google's Value: Using Prediction Markets to Forecast Market Capitalization Prior to an Initial Public Offering (August 2008). Available at SSRN: https://ssrn.com/abstract=887562 or http://dx.doi.org/10.2139/ssrn.887562

Joyce E. Berg

University of Iowa - Henry B. Tippie College of Business ( email )

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George R. Neumann

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

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Thomas A. Rietz (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

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HOME PAGE: http://tippie.uiowa.edu/people/profile/profile.aspx?id=195021

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