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IPO underpricing in supply and demand framework: evidence from a market of retailers

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  • Ahmed S. Alanazi
  • Benjamin Liu
  • Haitham A. Al-Zoubi

Abstract

How do supply, demand and allocation of shares on the underpricing of initial public offerings (IPOs) affect the shape and steepness of supply and demand curves? Theoretical studies posit that subscribers ‘flip’ in IPOs immediately on the listing day to capture instantaneous profits. Consistent with this hypothesis, we find that both curves of the market listing day of IPOs are significantly negatively sloped with the supply curve being much steeper and above the demand curve. The excess demand that occurs during the subscription period becomes excess supply once the shares start to float on the listing day. Overall, we establish a strong empirical link between the underpricing puzzle and the aftermarket interaction of IPOs.

Suggested Citation

  • Ahmed S. Alanazi & Benjamin Liu & Haitham A. Al-Zoubi, 2016. "IPO underpricing in supply and demand framework: evidence from a market of retailers," Applied Economics, Taylor & Francis Journals, vol. 48(60), pages 5835-5849, December.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:60:p:5835-5849
    DOI: 10.1080/00036846.2016.1186794
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    Cited by:

    1. Jamaani, Fouad & Ahmed, Abdullahi D., 2022. "The psychological and economic roles of culture on global underpricing difference: A new hierarchical evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    2. Alqahtani, Faisal & Boulanouar, Zakaria, 2017. "Sharia compliance status & investor demand for IPOs: Evidence from Saudi Arabia," Pacific-Basin Finance Journal, Elsevier, vol. 46(PB), pages 258-268.

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