IPO pricing as a function of your investment banks' past mistakes: The case of Facebook

The Efficient IPO Market Hypothesis: Theory and Evidence

“…Yet, Jagannathan, Jirnyi, and Sherman's (2015) examination of the competition between underwriting methods in over 50 countries finds that sealed-bid auctions never emerge as the dominant underwriting method if underwriters are free to choose alternatives. It follows that sealed-bid auctions are not (in practice) the optimal underwriting method, and this result in turn implies that at least some investors do potentially possess private information.7 An IPO's downside risk equals the absolute value of its expected return, setting all positive return realizations to 0.8 Our assumption that banks enter into a repeat game with a coalition of investors is consistent with the empirical findings on IPO share allocation byCornelli and Goldreich (2001), Gondat-Larralde and James (2008),Grullon, Underwood, and Weston (2014),Brown and Kovbasyuk (2016),Krigman and Jeffus (2016), and Jenkinson, Jones, and Suntheim (2018).…”