Popular Courses. Part Of. IPO Basics. Key Definitions. Key Questions and Answers. IPO Background and History. How It Works. Deeper Dive. Company Profiles IPOs. What Is Underpricing? Key Takeaways An IPO may be underpriced deliberately in order to boost demand and encourage investors to take a risk on a new company.
It may be underpriced accidentally because its underwriters underestimated the demand in the market for this company's stock. In any case, the IPO is considered underpriced by the difference between its first-day closing price and its set IPO price. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.
Investopedia does not include all offers available in the marketplace. A hot IPO is an initial public offering of strong interest to prospective shareholders such that they stand a reasonable chance of being oversubscribed. Privately Owned Privately owned refers to businesses that have not offered shares to be traded on a public exchange. The Pot The pot is the portion of a stock or bond issue that investment bankers return to the managing or lead underwriter.
Stag Stag is a slang term for a short-term speculator who attempts to profit from short-term market movements by quickly moving in and out of positions. Aftermarket Performance Definition and Example Aftermarket performance is the variation in the price level of a newly issued stock during a period after its initial public offering IPO. Partner Links. Related Articles. Experimental Economics , 10 2 , — Friedman, D.
The double auction market. Institutions, theories and evidence. New York: Addison-Wesley. Deflating bubbles in experimental asset markets: Comparative statics of margin regulations. In LSF research working paper series No. Sudden termination auction: An experimental study. Journal of Economics and Management Strategy, 21, — Greiner, B. Journal of the Economic Science Association , 1 1 , — Grinblatt, M. Signalling and the pricing of new issues. Journal of Finance, 44, — Habib, M.
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Underpricing of initial public offerings in experimental asset markets. Exp Econ 23, — Download citation. Received : 27 October Revised : 01 December Accepted : 05 December Published : 26 December Issue Date : December Anyone you share the following link with will be able to read this content:. Sorry, a shareable link is not currently available for this article. Provided by the Springer Nature SharedIt content-sharing initiative. Skip to main content.
Search SpringerLink Search. Download PDF. Abstract The underpricing of initial public offerings IPO is a well-documented fact of empirical equity market research. Introduction The underpricing of initial public offerings IPO is a well-documented fact of empirical equity market research. Literature review Recent reviews have summarized the explanations of the financial economics literature on the IPO underpricing phenomenon Ritter and Welch ; Ritter ; Ljungqvist ; Derrien Experimental design In initial public offerings, information on the prospective cash flows and on the intended exchange listing of the securities in the aftermarket is distributed among potential investors.
Trading and cash flows of issued securities in the aftermarket In this study, our aftermarket is implemented via the experimental asset market design of Smith et al. Data and results Experimental Setup Subjects were undergraduate students of the universities at Magdeburg and Bonn. Simulated distribution of asks below IPO price round 1 left; round 2 right.
Full size image. Table 4 Bubble measures Full size table. Summary In our laboratory study, we have investigated the behavior of prices in initial public offerings and the aftermarket. Notes 1. Subjects could unanimously vote for early termination, however. References Aggarwal, R. Google Scholar Amihud, Y. Google Scholar Ariely, D. Google Scholar Ausubel, L. Google Scholar Beatty, R. Google Scholar Benveniste, L. Google Scholar Biais, B.
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Google Scholar Ruud, J. Google Scholar Selten, R. Google Scholar Shefrin, H. Google Scholar Shiller, R. Google Scholar Sutter, M. The number of IPOs is highly cyclical. The transaction costs of the IPO are very high, and it is unclear why firms willingly incur such high costs. The long-run performance of a newly public company three to five years from the date of issue is poor. That is, on average, a three- to five-year buy-and-hold strategy appears to be a bad investment.
Report Issue. Answer 1.
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