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IPO Underpricing Explanations: Implications from Investor Application and Allocation Schedules

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  • Lee, Philip J.
  • Taylor, Stephen L.
  • Walter, Terry S.

Abstract

Initial Public Offers (IPOs) made on the Stock Exchange of Singapore routinely provide sufficiently detailed data to allow reconstruction of both the application and allocation schedules. We show that large investors tend to preferentially request participation in IPOs with higher initial returns, consistent with these investors being better informed. We also show that inferences based exclusively on application strategies are quite different from those drawn on investor allocations. Our results suggest that caution is necessary in assessing the relative merit of competing explanations for IPO underpricing where the underlying demand is not identified.

Suggested Citation

  • Lee, Philip J. & Taylor, Stephen L. & Walter, Terry S., 1999. "IPO Underpricing Explanations: Implications from Investor Application and Allocation Schedules," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(04), pages 425-444, December.
  • Handle: RePEc:cup:jfinqa:v:34:y:1999:i:04:p:425-444_00
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    Citations

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    Cited by:

    1. Svetlana BILOOCAIA, 2011. "Analysis of the Issuers’ Main Risks during the IPO," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 378-383.
    2. Cheung, Yan-leung & OUYANG, Zhiwei & TAN, Weiqiang, 2009. "How regulatory changes affect IPO underpricing in China," China Economic Review, Elsevier, vol. 20(4), pages 692-702, December.
    3. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    4. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "IPO Pricing and the Relative Importance of Investor Sentiment: Evidence from Germany," Discussion Papers 26, University of Bamberg, Chair of Finance.
    5. Cheung, Yan-Leung & Liu, Yang, 2007. "IPO price performance and block-trading activities: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, pages 276-291.
    6. Chen, Hung-Ling & Chow, Edward H. & Shiu, Cheng-Yi, 2015. "The informational role of individual investors in stock pricing: Evidence from large individual and small retail investors," Pacific-Basin Finance Journal, Elsevier, pages 36-56.
    7. Low, Soo-Wah & Yong, Othman, 2011. "Explaining over-subscription in fixed-price IPOs -- Evidence from the Malaysian stock market," Emerging Markets Review, Elsevier, vol. 12(3), pages 205-216, September.
    8. Rocholl, Jrg, 2009. "A friend in need is a friend indeed: Allocation and demand in IPO bookbuilding," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 284-310, April.
    9. Grammenos, Costas Th. & Papapostolou, Nikos C., 2012. "US shipping initial public offerings: Do prospectus and market information matter?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(1), pages 276-295.
    10. Bayley, Luke & Lee, Philip J. & Walter, Terry S., 2006. "IPO flipping in Australia: cross-sectional explanations," Pacific-Basin Finance Journal, Elsevier, pages 327-348.
    11. 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.
    12. repec:wsi:apjorx:v:34:y:2017:i:06:n:s0217595917500282 is not listed on IDEAS
    13. Boreiko, Dmitri & Lombardo, Stefano, 2011. "Italian IPOs: Allocations and claw back clauses," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 127-143, February.
    14. Pons-Sanz, Vicente, 2005. "Who benefits from IPO underpricing? Evidence form hybrid bookbuilding offerings," Working Paper Series 428, European Central Bank.
    15. Yong, Othman, 2007. "A review of IPO research in Asia: What's next?," Pacific-Basin Finance Journal, Elsevier, pages 253-275.
    16. Nippel, Peter & Pierdzioch, Christian & Schertler, Andrea, 2005. "Underpricing and Index Excess Returns," Kiel Working Papers 1259, Kiel Institute for the World Economy (IfW).
    17. Cheng, Louis T.W. & Chan, Kam C. & Mak, Billy S.C., 2005. "Strategic share allocation and underpricings of IPOs in Hong Kong," International Business Review, Elsevier, pages 41-59.
    18. Hsu, Yenshan & Shiu, Cheng-Yi, 2010. "The overconfidence of investors in the primary market," Pacific-Basin Finance Journal, Elsevier, pages 217-239.

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