Aftermarket Short Covering and the Pricing of IPOs
Investment banks legally pursue supposedly price stabilising activities in the aftermarket of IPOs. We model the offering procedure as a signalling game and analyse how the possibility of potentially profitable trading in the aftermarket influences the investment bank's pricing decision. Banks maximise the sum of both the gross spread of the offer revenue and profits from aftermarket trading. They therefore have an incentive to distort the offer price by strategically using aftermarket short covering and exercise of the overallotment option. This results either in informational inefficiencies or exacerbated underpricing, and redistribution of wealth mainly in favour of investment banks.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||29 Aug 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Office of the Secretary-General, Rm E35, The Bute Building, Westburn Lane, St Andrews, KY16 9TS, UK|
Phone: +44 1334 462479
Web page: http://www.res.org.uk/society/annualconf.asp
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecj:ac2002:16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.