IPO Pricing and Informational Efficiency: The Role of Aftermarket Short Covering
نویسندگان
چکیده
Investment banks legally pursue supposedly price stabilizing activities in the aftermarket of IPOs. We model the offering procedure as a signaling game and analyze how the possibility of potentially profitable trading in the aftermarket influences pricing decisions by investment banks. When maximizing the sum of both the gross spread of the offer revenue and profits from aftermarket trading, investment banks have an incentive to distort the offer price by employing aftermarket short covering and exercise of the overallotment option strategically. This results either in informational inefficiencies or, on average, exacerbated underpricing. Wealth is redistributed in favor of investment banks. JEL Classification: G14, G24, G28.
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تاریخ انتشار 2004