A Joint Experimental Analysis of Investor Behavior in Ipo Pricing Methods

Abstract

This article jointly examines the differences of laboratory versions of the Dutch clock open auction, a sealed-bid auction to represent book building, and a two-stage sealed bid auction to proxy for the "competitive IPO", a recent innovation used in a few European equity initial public offerings. We investigate pricing, seller allocation, and buyer welfare allocation efficiency and conclude that the book building emulation seems to be as price efficient as the Dutch auction, even after investor learning, whereas the competitive IPO is not price efficient, regardless of learning. The competitive IPO is the most seller allocative efficient method because it maximizes offer proceeds. The Dutch auction emerges as the most buyer welfare allocative efficient method. Underwriters are probably seeking pricing efficiency rather than seller or buyer welfare allocative efficiency and their discretionary pricing and allocation must be important since book building is prominent worldwide.KEYWORDS | Auction, book building, experiment, competitive IPO, IPO. RESUMO Este artigo examina conjuntamente as diferenças de versões experimentais do leilão holandês, um leilão de lances fechados representando o book building, e um leilão similar de dois estágios encarnando o "IPO competitivo", uma inovação usada em algumas ofertas públicas iniciais de ações (IPOs) europeias. Investigamos a eficiência no apreçamento e na alocação e concluímos que o book building simulado é tão eficiente no apreçamento quanto o leilão holandês enquanto o IPO competitivo não é eficiente no apreçamento, independentemente do aprendizado do investidor. O IPO competitivo é o método mais eficiente na alocação ao emissor porque maximiza a captação. O leilão holandês emerge como o método mais eficiente para a alocação ao comprador. Os intermediários financeiros devem preferir a eficiência no apreçamento em vez de eficiência na alocação e sua discricionariedade nestes procedimentos deve ser importante porque o book building é proeminente no mundo. PALAVRAS -CHAVE | Leilão, book building, experimento, IPO competitivo, IPO. RESUMENEl presente artículo examina de forma conjunta las diferencias entre las versiones de laboratorio de la subasta holandesa, una subasta de oferta cerrada para presentar las ofertas, y una subasta cerrada de dos fases para actuar como apoderados de la " IPO competitiva", una RAE-Revista de Administração de Empresas | FGV-EAESP

Behavioral Finance: Advances in the Last Decade

“…The results of Almeida and Leal (2015), which favor bookbuilding, are in line with Cornelli andGoldreich (2001) andWilhelm Jr. (2005). Perhaps the growing literature supporting bookbuilding will encourage the development of this model in international markets, supplanting other pricing mechanisms.…”

“…Almeida and Leal (2015) focus on an approach that has been developing rapidly recently, mainly for two reasons. First, because the economic and behavioral variables The present paper, via controlled experiments with students and market professionals, examines whether there are differences in pricing initial public offerings (IPOs) when changing the method of pricing.…”

“…The three methods for pricing used in Almeida and Leal's (2015) Almeida and Leal based their experiment upon the work of Bonini and Voloshyna (2013), conducting all sessions with the support of z-Tree (Fischbacher, 2007), a software commonly used in Experimental Economics. Among the 9 experimental sessions, the 87 participants were composed of 38 students and 49 professionals in the financial market.…”