Is the IPO pricing process efficient?

Lowry, Michelle; Schwert, G. William

doi:10.1016/s0304-405x(03)00205-8

Cited by 336 publications

(251 citation statements)

References 22 publications

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“…We define pricing efficiency in the IPO context as initial returns close to zero. Lowry and Schwert (2004) used the ex-post observed underpricing and midpoint of the preliminary price range update to measure IPO pricing efficiency, in the absence of actual bidding data. We analyze the implications for information aggregation of the three price methods with experimental bid data, instead.…”

Section: Introductionmentioning

confidence: 99%

A Joint Experimental Analysis of Investor Behavior in Ipo Pricing Methods

Almeida

Leal

2015

Rev. adm. empres.

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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

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Section: Introductionmentioning

confidence: 99%

A Joint Experimental Analysis of Investor Behavior in Ipo Pricing Methods

Almeida

Leal

2015

Rev. adm. empres.

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“…For our main sample, the target was valued in conjunction with its planned IPO. Lowry and Schwert (2004) note, "the vast majority of public information is in fact fully incorporated [in the initial price range and final offer price]" and "the IPO pricing process is almost efficient." participants are expected to attribute to the target as part of the acquirer) and its distribution.…”

Section: Introductionmentioning

confidence: 99%

The underpricing of private targets

Cooney

Moeller

Stegemoller

2009

Journal of Financial Economics

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“…In addition, notice that, conditional upon a downward revision in the offer price, private information learned during the book-building period does not predict first-day returns. As emphasized by Lowry and Schwert (2004), the lower magnitude of initial returns following negative private information is consistent with underwriters trying to avoid losses on overpriced issues while allowing informed investors to share the gains on underpriced issues. Finally, we observe that, when positive and negative private information have an asymmetric effect on initial returns, an F test provides evidence that the coefficients differ across underwriters.…”

Section: The Response Of First-day Returns To Public and Private Infomentioning

confidence: 74%

“…Like Lowry and Schwert (2004), I investigate the underwriters' treatment of public and private information throughout the Brazilian IPO pricing process. Before presenting the benchmark econometric model used in the empirical analysis, however, I describe the sample of IPOs used in this study.…”

Section: The Ipo Pricing Processmentioning

confidence: 99%

“…Nevertheless, ceteris paribus, a positive shock into the update equation, captured by the bids of investors, will translate itself into a higher initial return as long as σ i 12 > 0. The model proposed in this section is similar in nature to the framework employed by Lowry and Schwert (2004), but with some important differences. First, they include the underwriter rank among the explanatory variables in both the price update and the initial return equations, which means that they implicitly treat the underwriter choice as exogenous and that the underwriter rank simply shifts the intercepts of the regressions.…”

Section: Modelmentioning

confidence: 99%

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The underpricing of Brazilian IPOs and the adjustment to public and private information

Avelino¹

2013

Rev. Bras. Econ.

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JEL Code: G14; G24: G32.This paper examines the underwriters' treatment of information throughout the IPO pricing process based on a sample of Brazilian companies that went public between 2004 and 2011. There is evidence that the offer price partially incorporates the information contained into the Bovespa index during the book-building period, reacting symmetrically to upward and downward movements. The first-day return, as a result, is predictable on the basis of this information. Positive private information disclosed during the book-building period is also partially incorporated into the offer price. Issues priced above the midpoint of the initial price range are associated with higher initial returns. Este artigo examina o tratamento da informação pelo coordenador líder

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Is the IPO pricing process efficient?

Cited by 336 publications

References 22 publications

A Joint Experimental Analysis of Investor Behavior in Ipo Pricing Methods

A Joint Experimental Analysis of Investor Behavior in Ipo Pricing Methods

The underpricing of private targets

The underpricing of Brazilian IPOs and the adjustment to public and private information

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