The Market for New Issues: Impact of Offering Price on Price Support and Underpricing

The Market for New Issues: Impact of Offering Price on Price Support and Underpricing Previous studies have shown that the pattern of first day returns to initialpublic offerings is consistent with the hypotheses of underpricing and price support. We examine two different periods, 1975–1984 and 1996–2002, and find that in each case the measures of price support and underpricing are substantially affected by the initial public offerings' beginning price. During the period 1975–1984, the mean and standard deviation of returns to the price supported group are nearly always zero regardless of price, whileg the mean of the returns to the underpriced group is smile-shaped: high for low-priced and high-priced stocks but lower for stocks offered at intermediate prices. The patterns are different in the most recent data: the mean and standard deviation of both the price supported and underpriced groups are smile-shaped. For the lowest priced stocks, the measures in the later period mirror those for the 1975–1984 period, but for more expensive stocks the measures are substantially higher. The results apply to the first day returns of both firm commitment and best efforts offerings. Once price is taken into account, other than the difference in the probability of price support, the differences among offering types seem to be of secondary importance in explaining first day returns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Market for New Issues: Impact of Offering Price on Price Support and Underpricing

Loading next page...
 
/lp/springer_journal/the-market-for-new-issues-impact-of-offering-price-on-price-support-kMbC86pxZN
Publisher
Springer Journals
Copyright
Copyright © 2006 by Springer Science + Business Media, Inc.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-006-7214-z
Publisher site
See Article on Publisher Site

Abstract

Previous studies have shown that the pattern of first day returns to initialpublic offerings is consistent with the hypotheses of underpricing and price support. We examine two different periods, 1975–1984 and 1996–2002, and find that in each case the measures of price support and underpricing are substantially affected by the initial public offerings' beginning price. During the period 1975–1984, the mean and standard deviation of returns to the price supported group are nearly always zero regardless of price, whileg the mean of the returns to the underpriced group is smile-shaped: high for low-priced and high-priced stocks but lower for stocks offered at intermediate prices. The patterns are different in the most recent data: the mean and standard deviation of both the price supported and underpriced groups are smile-shaped. For the lowest priced stocks, the measures in the later period mirror those for the 1975–1984 period, but for more expensive stocks the measures are substantially higher. The results apply to the first day returns of both firm commitment and best efforts offerings. Once price is taken into account, other than the difference in the probability of price support, the differences among offering types seem to be of secondary importance in explaining first day returns.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jan 1, 2006

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off