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The Underpricing of Initial Public Offerings at the Berlin Stock Exchange, 1870–96

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  • Burhop Carsten

    (Max Planck Institute for Research on Collective Good, Kurt-Schumacher-Straße 10, Bonn, Germany)

Abstract

In this article, we evaluate underpricing of initial public offerings at the Berlin Stock Exchange between 1870 and 1896. In contrast to modern data, first-day returns were extraordinary low and averaged less than 5%, even during the speculative period of the early 1870s. Moreover, standard underpricing theories based on asymmetric information, signalling mechanisms or litigation risk cannot explain underpricing. In contrast to modern markets, underpricing was higher during hot issue markets. Finally, we show that cash-flow relevant information contained in the corporate charter was readily factored in the first market price. Thus, the historical capital market differed from today’s market, but seems to have been efficient.

Suggested Citation

  • Burhop Carsten, 2011. "The Underpricing of Initial Public Offerings at the Berlin Stock Exchange, 1870–96," German Economic Review, De Gruyter, vol. 12(1), pages 11-32, February.
    • Handle: RePEc:bpj:germec:v:12:y:2011:i:1:p:11-32
    DOI: 10.1111/j.1468-0475.2010.00502.x
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    Citations

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    Cited by:

    1. Lehmann-Hasemeyer, Sibylle H. & Neumayer, Andreas, 2018. "The persistence of ownership inequality. Investors on the German stock exchanges, 1869 – 1945," Working Papers 8, German Research Foundation's Priority Programme 1859 "Experience and Expectation. Historical Foundations of Economic Behaviour", Humboldt University Berlin.
    2. Sibylle Lehmann-Hasemeyer & Jochen Streb, 2016. "The Berlin Stock Exchange in Imperial Germany: A Market for New Technology?," American Economic Review, American Economic Association, vol. 106(11), pages 3558-3576, November.
    3. Buchner, Michael, 2018. "The Berlin Bourse in the London mirror: An asymmetric comparison of microstructures and the role of Germany's large banks in securities trading, c. 1860-1914," IBF Paper Series 01-18, IBF – Institut für Bank- und Finanzgeschichte / Institute for Banking and Financial History, Frankfurt am Main.
    4. Lehmann-Hasemeyer, Sibylle H. & Neumayer, Andreas, 2018. "The persistence of ownership inequality: Investors on the German stock exchanges, 1869-1945," Hohenheim Discussion Papers in Business, Economics and Social Sciences 20-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    5. Sibylle Lehmann, 2011. "Taking Firms to the Stock Market: IPOs and the Importance of Universal Banks in Imperial Germany 1896-1913," Cologne Economic History papers 9, University of Cologne, Department of Economic and Business History, revised Mar 2011.

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