Advanced Search
MyIDEAS: Login to save this article or follow this journal

Strategic pricing of equity issues

Contents:

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)

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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://link.springer.de/link/service/journals/00199/papers/2020002/20200271.pdf
Download Restriction: Access to the full text of the articles in this series is restricted

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 20 (2002)
Issue (Month): 2 ()
Pages: 271-294

as in new window
Handle: RePEc:spr:joecth:v:20:y:2002:i:2:p:271-294

Note: Received: March 14, 2000; revised version: May 15, 2001
Contact details of provider:
Web page: http://link.springer.de/link/service/journals/00199/index.htm

Order Information:
Web: http://link.springer.de/orders.htm

Related research

Keywords: Asset markets; Game theory; General equilibrium; Market manipulation; Public offerings.;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702.
  2. Tinic, Seha M, 1988. " Anatomy of Initial Public Offerings of Common Stock," Journal of Finance, American Finance Association, vol. 43(4), pages 789-822, September.
  3. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
  4. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 147-56, January.
  5. Makowski, Louis, 1983. "Competition and Unanimity Revisited," American Economic Review, American Economic Association, vol. 73(3), pages 329-39, June.
  6. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March.
  7. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
  8. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
  9. Gale, Ian L & Stiglitz, Joseph E, 1989. " The Informational Content of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 469-77, June.
  10. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  11. Egbert Dierker & Birgit Grodal, 1994. "Profit Maximization Mitigates Competition," Discussion Papers 94-15, University of Copenhagen. Department of Economics.
  12. DeAngelo, Harry, 1981. "Competition and Unanimity," American Economic Review, American Economic Association, vol. 71(1), pages 18-27, March.
  13. Benveniste, Lawrence M. & Spindt, Paul A., 1989. "How investment bankers determine the offer price and allocation of new issues," Journal of Financial Economics, Elsevier, vol. 24(2), pages 343-361.
  14. Polemarchakis, H M, 1983. "On the Transer Paradox," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 749-60, October.
  15. Vives, Xavier, 1987. "Small Income Effects: A Marshallian Theory of Consumer Surplus and Downward Sloping Demand," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 87-103, January.
  16. Dierker, Egbert, 1972. "Two Remarks on the Number of Equilibria of an Economy," Econometrica, Econometric Society, vol. 40(5), pages 951-53, September.
  17. Dierker, Egbert, 1993. "Regular economies," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 17, pages 795-830 Elsevier.
  18. Mark Grinblatt & Chuan Yang Hwang, . "Signalling and the Pricing of Unseasoned New Issues," Rodney L. White Center for Financial Research Working Papers 1-89, Wharton School Rodney L. White Center for Financial Research.
  19. Welch, Ivo, 1989. " Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 44(2), pages 421-49, June.
  20. Parsons, John E. & Raviv, Artur, 1985. "Underpricing of seasoned issues," Journal of Financial Economics, Elsevier, vol. 14(3), pages 377-397, September.
  21. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
  22. Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
  23. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
  24. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
  25. Mercenier, Jean, 1995. "Nonuniqueness of Solutions in Applied General Equilibrium Models with Scale Economies and Imperfect Competition," Economic Theory, Springer, vol. 6(1), pages 161-77, June.
  26. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, vol. 7(3), pages 348-353, March.
  27. Grinblatt, Mark & Hwang, Chuan Yang, 1989. " Signalling and the Pricing of New Issues," Journal of Finance, American Finance Association, vol. 44(2), pages 393-420, June.
  28. Milne, Frank, 1981. "Induced preferences and the theory of the consumer," Journal of Economic Theory, Elsevier, vol. 24(2), pages 205-217, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Silvia Rossetto, 2013. "IPO activity and information in secondary market prices," Annals of Finance, Springer, vol. 9(4), pages 667-687, November.
  2. Silvia Rossetto, 2008. "The price of rapid exit in venture capital-backed IPOs," Annals of Finance, Springer, vol. 4(1), pages 29-53, January.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:20:y:2002:i:2:p:271-294. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.