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Primary Market Design: Direct Mechanisms and Markets

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Author Info

  • Alex Stomper

    (Department of Business Studies ,University of Vienna)

  • Pegaret Pichler

    (Department of Finance and Economics, Sloan School of Management Massachusetts Institute of Technology)

Abstract

We develop a model that allows for the coexistence of bookbuilding and when-issued trading. We show that, due to interactions between these two processes, allowing for when-issued trading is for the most part beneficial for issuers. When-issued trading may interfere with information gathering thorough bookbuilding, in the case that informative bookbuilding is not needed. However, informative bookbuilding may be a prerequisite for the when-issued market to function. In this case the existence of a liquid when-issued market will not interfere with information gathering through bookbuilding, and will strictly benefit the issuer.

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File URL: http://www.feem.it/userfiles/attach/Publication/NDL2004/NDL2004-009.pdf
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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.9.

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Date of creation: Jan 2004
Date of revision:
Handle: RePEc:fem:femwpa:2004.9

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Related research

Keywords: Initial public offerings; Information gathering mechanisms; When-issued trading;

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References

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  1. 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.
  2. Bruno Biais & Peter Bossaerts & Jean-Charles Rochet, 2002. "An Optimal IPO Mechanism," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 117-146.
  3. Alexander P. Ljungqvist & Tim Jenkinson & William J. Wilhelm, Jr., 2003. "Global Integration in Primary Equity Markets: The Role of U.S. Banks and U.S. Investors," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 63-99.
  4. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
  5. Dorn, Daniel, 2009. "Does Sentiment Drive the Retail Demand for IPOs?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 85-108, February.
  6. Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," NBER Working Papers 8805, National Bureau of Economic Research, Inc.
  7. Aussenegg, Wolfgang & Pichler, Pegaret & Stomper, Alex, 2006. "IPO Pricing with Bookbuilding and a When-Issued Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(04), pages 829-862, December.
  8. William Wilhelm & Alexander Ljungqvist, 2001. "IPO Allocations: Discriminatory or Discretionary?," OFRC Working Papers Series 2001fe08, Oxford Financial Research Centre.
  9. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
  10. Sushil Bikhchandani & Chi-fu Huang, 1993. "The Economics of Treasury Securities Markets," Journal of Economic Perspectives, American Economic Association, vol. 7(3), pages 117-134, Summer.
  11. Beatty, Randolph P & Welch, Ivo, 1996. "Issuer Expenses and Legal Liability in Initial Public Offerings," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 545-602, October.
  12. Jenkinson, Tim & Ljungqvist, Alexander, 2001. "Going Public: The Theory and Evidence on How Companies Raise Equity Finance," OUP Catalogue, Oxford University Press, edition 2, number 9780198295990.
  13. Loffler, Gunter & Panther, Patrick F. & Theissen, Erik, 2005. "Who knows what when? The information content of pre-IPO market prices," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 466-484, October.
  14. Vojislav Maksimovic & Pegaret Pichler, 2006. "Structuring the Initial Offering: Who to Sell To and How to Do It," Review of Finance, European Finance Association, vol. 10(3), pages 353-387, September.
  15. Demers, Elizabeth & Lewellen, Katharina, 2003. "The marketing role of IPOs: evidence from internet stocks," Journal of Financial Economics, Elsevier, vol. 68(3), pages 413-437, June.
  16. repec:kap:eurfin:v:10:y:2006:i:3:p:353-387 is not listed on IDEAS
  17. Nyborg, Kjell G. & Sundaresan, Suresh, 1996. "Discriminatory versus uniform Treasury auctions: Evidence from when-issued transactions," Journal of Financial Economics, Elsevier, vol. 42(1), pages 63-104, September.
  18. Tim Loughran & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 413-444, March.
  19. Ritter, Jay R., 2003. "Investment banking and securities issuance," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 5, pages 255-306 Elsevier.
  20. Nanda, Vikram & Yun, Youngkeol, 1997. "Reputation and Financial Intermediation: An Empirical Investigation of the Impact of IPO Mispricing on Underwriter Market Value," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 39-63, January.
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