2010
DOI: 10.1017/s0022109010000128
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How Syndicate Short Sales Affect the Informational Efficiency of IPO Prices and Underpricing

Abstract: When a company goes public, it is standard practice that the underwriting syndicate allocates more shares than are issued. The underwriter thus holds a short position that it commonly fills by aftermarket trading when market prices fall or, when prices rise, by executing the so-called overallotment option. This option is a standard feature of initial public offering (IPO) arrangements that allows the underwriter to purchase more shares from the issuer at the original offer price. We propose a theoretical model… Show more

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Cited by 7 publications
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