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research article : Strategic pricing of equity issues

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Author Info
Klaus Ritzberger () (Institute for Advanced Studies, Department of Economics and Finance, Stumpergasse 56, 1060 Vienna, AUSTRIA)
Frank Milne () (Queen's University, Department of Economics, Kingston Ontario K7L 3N6, CANADA)

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Abstract

Consider a general equilibrium model where agents may behave strategically. Specifically, suppose some firm issues new shares. If the primary market price is controlled by the issuing institution and investors' expectations on future equity prices are constant in their share purchases, the share price on the primary market cannot exceed the secondary market share price. In certain cases this may imply strict underpricing of newly issued shares. If investors perceive an influence on future share prices overpriced issues may occur in equilibrium. This provides an example of strategic price manipulation in general equilibrium models with sequential markets.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 20 (2002)
Issue (Month): 2 ()
Pages: 271-294
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Handle: RePEc:spr:joecth:v:20:y:2002:i:2:p:271-294

Note: Received: March 14, 2000; revised version: May 15, 2001
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Related research
Keywords: Asset markets Game theory General equilibrium Market manipulation Public offerings.

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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This page was last updated on 2008-8-11.

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