Endogenous Entry and Partial Adjustment in IPO Auctions: Are Institutional Investors Better Informed?

50 Pages Posted: 20 Mar 2008 Last revised: 16 Dec 2015

See all articles by Yao-Min Chiang

Yao-Min Chiang

National Taiwan University - Department of Finance

Yiming Qian

University of Connecticut

Ann E. Sherman

DePaul University

Date Written: April 1, 2009

Abstract

Using a unique dataset of complete bid information for every IPO auction in Taiwan during 1995-2000, we examine the behaviors and returns of two groups - institutional and retail investors - in a setting in which underwriters do not have pricing or allocation discretion. We find that the bids of institutional investors are generally consistent with the predictions of IPO auction theory for informed bidders, while those of individual investors are not. Specifically, returns are higher when more institutional investors enter the auction or bid higher prices, suggesting institutional investors are informed and are also able to shave bids adequately. On the other hand, individual investors as a group exhibit return-chasing behavior, are uninformed, and systematically overbid.

Keywords: IPO, auction, institutional investor, individual investor, retail investor, informed investor, IPO method, underwriter favoritism, underpricing, endogenous entry, partial adjustment, return chasing

JEL Classification: G24, G28, G32

Suggested Citation

Chiang, Yao-Min and Qian, Yiming and Sherman, Ann E., Endogenous Entry and Partial Adjustment in IPO Auctions: Are Institutional Investors Better Informed? (April 1, 2009). Forthcoming in Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=990929 or http://dx.doi.org/10.2139/ssrn.990929

Yao-Min Chiang

National Taiwan University - Department of Finance ( email )

No.1 Sec. 4, Roosevelt Rd.
Taipei, 10605
Taiwan
+886 -2 -33661089 (Phone)

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Ann E. Sherman

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5499 (Phone)

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