Auctions versus book-built IPOs in Japan: A comparison of aftermarket volatility
In a recent theoretical paper, Sherman [Sherman, A.E., 2005, Global trends in IPO methods: Book building versus auctions with endogenous entry, Journal of Financial Economics 78, 615-649.] proposes that: "If book building leads to greater expected underpricing relative to uniform price or discriminatory auctions, then it should also lead to less volatility in aftermarket trading...". In this paper, we study a Japanese sample and find that book-built IPOs exhibit greater underpricing and higher aftermarket volatility compared to price-discriminatory auctions. Aftermarket volatility wanes with seasoning in both sub-samples, but the book-built volatility levels are persistently higher than those for auctions for as long as one year after the IPO issue date.
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- 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.
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- Sherman, Ann E., 2005. "Global trends in IPO methods: Book building versus auctions with endogenous entry," Journal of Financial Economics, Elsevier, vol. 78(3), pages 615-649, December.
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- Ravi Jagannathan & Ann E. Sherman, 2006. "Why Do IPO Auctions Fail?," NBER Working Papers 12151, National Bureau of Economic Research, Inc.
- Kenji Kutsuna, 2004. "Why Does Book Building Drive Out Auction Methods of IPO Issuance? Evidence from Japan," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1129-1166.
- Jonathan Reuter, 2006. "Are IPO Allocations for Sale? Evidencefrom Mutual Funds," Journal of Finance, American Finance Association, vol. 61(5), pages 2289-2324, October.
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