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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27193
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| Title: | Hot Markets, Investor Sentiment, and IPO Pricing |
| Authors: | Ljungqvist, Alexander P.
Nanda, Vikram
Singh, Rajdeep |
| Issue Date: | 18-Sep-2001 |
| Series/Report no.: | S-FI-01-05 |
| Abstract: | Our model of the initial public offering process links the three main
empirical IPO ‘anomalies’ – underpricing, hot issue
markets, and long-run underperformance – and traces them to a
common source of inefficiency. We relate hot IPO markets (such as the
1999/2000 market for Internet IPOs) to the presence of a class of
investors who are ‘irrational’ in the sense of having
exuberant expectations regarding future performance. Underpricing and
long-run underperformance emerge as underwriters attempt to maximize
profits from the sale of equity, at the expense of these exuberant
investors. Underpricing serves to compensate regular IPO investors for
their role in restricting the supply of available shares and maintaining
prices. The model is shown to be consistent with many aspects of the IPO
process. It also generates a number of new empirical predictions. |
| URI: | http://hdl.handle.net/2451/27193 |
| Appears in Collections: | Financial Institutions
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