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Bookbuilding: How Informative Is the Order Book?

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  • Francesca Cornelli
  • David Goldreich

Abstract

We examine the institutional bids submitted under the bookbuilding procedure for a sample of international equity issues. We find that information in bids which include a limit price, especially those of large and frequent bidders, affects the issue price. Oversubscription has a smaller but significant effect for IPOs. Public information affects the issue price to the extent that it is reflected in the bids. Oversubscription and demand elasticity are positively correlated with the first-day aftermarket return, and demand elasticity is negatively correlated with aftermarket volatility. Our results support the view that bookbuilding is designed to extract information from investors. Copyright (c) 2003 by the American Finance Association.

Suggested Citation

  • Francesca Cornelli & David Goldreich, 2003. "Bookbuilding: How Informative Is the Order Book?," Journal of Finance, American Finance Association, vol. 58(4), pages 1415-1443, August.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:4:p:1415-1443
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