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Underpricing and Ex Post Value Uncertainty

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  • Sonia Falconieri
  • Albert Murphy
  • Daniel Weaver

Abstract

"As documented by a vast empirical literature, initial public offerings (IPOs) are characterized by underpricing. A number of papers have shown that underpricing is directly related to the amount of ex ante uncertainty concerning the IPOs valuation. Recent theoretical papers propose that not all value uncertainty is resolved prior to the start of trading, but rather continues to be resolved in the beginning of the after market. We term this type of uncertainty as ex post value uncertainty and develop proxies for it. We find strong support for the existence of ex post value uncertainty and find that including a proxy for it more than doubles the explanatory power of previous models." Copyright (c) 2009 Financial Management Association International.

Suggested Citation

  • Sonia Falconieri & Albert Murphy & Daniel Weaver, 2009. "Underpricing and Ex Post Value Uncertainty," Financial Management, Financial Management Association International, vol. 38(2), pages 285-300, June.
  • Handle: RePEc:bla:finmgt:v:38:y:2009:i:2:p:285-300
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    Citations

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    Cited by:

    1. Jiang, Li & Li, Gao, 2013. "Investor sentiment and IPO pricing during pre-market and aftermarket periods: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 23(C), pages 65-82.
    2. Edwards, Amy K. & Hanley, Kathleen Weiss, 2010. "Short selling in initial public offerings," Journal of Financial Economics, Elsevier, vol. 98(1), pages 21-39, October.
    3. repec:eee:finana:v:51:y:2017:i:c:p:25-53 is not listed on IDEAS
    4. Md Hamid Uddin & Mahendra Raj, 2012. "Aftermarket Risk And Underpricing Of Initial Public Offers In The Arabian Gulf Countries: An Empirical Analysis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 123-138.
    5. Mouri, Nacef & Sarkar, M.B. & Frye, Melissa, 2012. "Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty," Journal of Business Venturing, Elsevier, vol. 27(3), pages 355-371.
    6. McGuinness, Paul B., 2016. "Voluntary profit forecast disclosures, IPO pricing revisions and after-market earnings drift," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 70-83.
    7. Jones, Steven L. & Yeoman, John C., 2014. "Initial uncertainty and the risk of setting a fixed-offer price: Implications for the pricing of bookbuilt and best-efforts IPOs," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 194-215.
    8. Seshadev Sahoo, 2015. "Subscription Rate and Volatility," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(1), pages 20-58, April.

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