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Conference Paper: Demand uncertainty, Bayesian update, and IPO pricing

TitleDemand uncertainty, Bayesian update, and IPO pricing
Authors
KeywordsInitial public offerings
Underpricing
Price update
Demand uncertainty
Issue Date2011
Citation
The 2011 China International Conference in Finance, Wuhan, China, 4-7 July 2011. How to Cite?
2011中国金融国际年会, 中国, 武汉, 2011年7月4日至7日. How to Cite?
AbstractWhen the market undergoes a learning process about the IPO, it takes time for the demand to reach the equilibrium consistent with the new issue’s intrinsic value. Hence, the temporary short-term demand can deviate substantially from the stabilized long-term demand. This difference requires the underwriter to respond differently to different pre-market conditions that are dictated by the short-term demand: While she must accommodate the overly pessimistic views of investors in a cold IPO (because the shares cannot be sold at a perceived premium), she has the option to respond only partially to investors’ overly optimistic views in a hot IPO. We model this asymmetric response of the underwriter and derive IPO regularities relating underpricing, partial price revision, and long-run underperformance. We provide evidence that supports the model’s predictions.
Persistent Identifierhttp://hdl.handle.net/10722/141188

 

DC FieldValueLanguage
dc.contributor.authorQi, Ren_US
dc.contributor.authorZhou, Xen_US
dc.date.accessioned2011-09-23T06:27:43Z-
dc.date.available2011-09-23T06:27:43Z-
dc.date.issued2011en_US
dc.identifier.citationThe 2011 China International Conference in Finance, Wuhan, China, 4-7 July 2011.en_US
dc.identifier.citation2011中国金融国际年会, 中国, 武汉, 2011年7月4日至7日.-
dc.identifier.urihttp://hdl.handle.net/10722/141188-
dc.description.abstractWhen the market undergoes a learning process about the IPO, it takes time for the demand to reach the equilibrium consistent with the new issue’s intrinsic value. Hence, the temporary short-term demand can deviate substantially from the stabilized long-term demand. This difference requires the underwriter to respond differently to different pre-market conditions that are dictated by the short-term demand: While she must accommodate the overly pessimistic views of investors in a cold IPO (because the shares cannot be sold at a perceived premium), she has the option to respond only partially to investors’ overly optimistic views in a hot IPO. We model this asymmetric response of the underwriter and derive IPO regularities relating underpricing, partial price revision, and long-run underperformance. We provide evidence that supports the model’s predictions.-
dc.languageengen_US
dc.relation.ispartof2011 China International Conference in Financeen_US
dc.relation.ispartof2011中国金融国际年会-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectInitial public offerings-
dc.subjectUnderpricing-
dc.subjectPrice update-
dc.subjectDemand uncertainty-
dc.titleDemand uncertainty, Bayesian update, and IPO pricingen_US
dc.typeConference_Paperen_US
dc.identifier.emailZhou, X: xianzhou@hkucc.hku.hken_US
dc.identifier.authorityZhou, X=rp01129en_US
dc.description.naturepostprint-
dc.identifier.hkuros194287en_US

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