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The underpricing phenomenon in initial public offerings is explained by the greed of financial speculators

Author

Listed:
  • Yandiev Magomet

    (Department of Economics, Lomonosov Moscow State University)

Abstract

The article is devoted to the explanation of the reason of the post-IPO stock undervaluation phenomenon, which is quite widespread in the markets. The author shows that the first day of trading fundamentally differs from other trading days by a very large, uncharacteristic for other days volume of deals, the absolute majority of which are speculative. As a result, the real reason for the phenomenon of undervaluation is not information asymmetry, underwriter’s reputation, taxation, etc., but the profit: speculative investors expect to get the maximum income from speculating on shares whose quotations have not yet settled in the market after the IPO.

Suggested Citation

  • Yandiev Magomet, 2024. "The underpricing phenomenon in initial public offerings is explained by the greed of financial speculators," Working Papers 0069, Moscow State University, Faculty of Economics.
    • Handle: RePEc:upa:wpaper:0069
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    More about this item

    Keywords

    IPO; underpricing; Russia;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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