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IPO pricing: a case of short-sale restrictions and divergent expectations

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  • Richard J. Kish
  • Nandkumar Nayar
  • Wenlong Weng

Abstract

Prior research shows that short-sale restrictions during an IPO lead to higher aftermarket prices. Using this and heterogeneous expectations on the factor pricing coefficient, our model sheds additional light on the impact of the short-selling constraint. Like prior research, short-sale restrictions in the IPO market lead to higher aftermarket prices. Importantly, our model predicts that this constraint leads to a different factor pricing coefficient than the analog under complete markets. Our empirical tests over an extended period of time support the model's predictions.

Suggested Citation

  • Richard J. Kish & Nandkumar Nayar & Wenlong Weng, 2012. "IPO pricing: a case of short-sale restrictions and divergent expectations," Quantitative Finance, Taylor & Francis Journals, vol. 12(9), pages 1439-1451, November.
    • Handle: RePEc:taf:quantf:v:12:y:2012:i:9:p:1439-1451
    DOI: 10.1080/14697688.2010.542172
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