Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-15T08:35:04.975Z Has data issue: false hasContentIssue false
  • English
  • Français

IPO Pricing with Bookbuilding and a When-Issued Market

Published online by Cambridge University Press:  06 April 2009

Wolfgang Aussenegg ,
Pegaret Pichler  and
Alex Stomper
Wolfgang Aussenegg
Affiliation:
waussen@pop.tuwien.ac.at, Vienna University of Technology, Department of Finance and Corporate Control, Vienna, Austria
Pegaret Pichler
Affiliation:
pegaretp@ihs.ac.at, Institute for Advanced Studies, Vienna, Austria
Alex Stomper
Affiliation:
stomper@ihs.ac.at, Institute for Advanced Studies, Vienna, Austria.
Get access Rights & Permissions [Opens in a new window]

Abstract

We study IPO pricing in Germany to determine whether when-issued trading provides information that is useful for setting IPO offer prices, and whether such trading supplants bookbuilding as a source of information. We find that when-issued trading reveals relevant information for pricing IPOs, and that, once when-issued trading has begun, bookbuilding is not a source of costly information for pricing. But bookbuilding does not appear to be fully supplanted as a source of pricing information. We find evidence consistent with bookbuilding being used to gather information prior to the onset of when-issued trading.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 4 , December 2006 , pp. 829 - 862
Copyright
Copyright © School of Business Administration, University of Washington 2006

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Beatty, R. P., and Welch, I.. “Issuer Expenses and Legal Liability in Initial Public Offerings.” Journal of Law and Economics, 39 (1996), 545–602.CrossRefGoogle Scholar
Benveniste, L.; Ljungqvist, A.; Wilhelm, W.; and Yu, X.. “Evidence of Information Spillovers in the Production of Investment Banking Services.” Journal of Finance, 58 (2003), 577–608.CrossRefGoogle Scholar
Benveniste, L., and Spindt, P. A.. “How Investment Bankers Determine the Offer Price and Allocation of New Issues.” Journal of Financial Economics, 24 (1989), 343–361.CrossRefGoogle Scholar
Bikhchandani, S., and Huang, C.-F.. “The Treasury Bill Auction and the When-Issued Market: Some Evidence.” Working Paper, UCLA (1992).Google Scholar
Bikhchandani, S., and Huang, C.-F.. “The Economics of Treasury Securities Markets.” Journal of Economic Perspectives, 7 (1993), 117–134.CrossRefGoogle Scholar
Booth, J. R., and Chua, L.. “Ownership Dispersion, Costly Information, and IPO Underpricing.” Journal of Financial Economics, 41 (1996), 291–310.CrossRefGoogle Scholar
Bradley, D. J., and Jordan, B. D.. “Partial Adjustment to Public Information and IPO Underpricing.” Journal of Financial and Quantitative Analysis, 37 (2002), 595–616.CrossRefGoogle Scholar
Carter, R. B., and Manaster, S.. “Initial Public Offerings and Underwriter Reputation.” Journal of Finance, 45 (1990), 1045–1067.CrossRefGoogle Scholar
Chatterjea, A., and Jarrow, R. A.. “Market Manipulation, Price Bubbles, and a Model of the U.S. Treasury Securities Auction Market.” Journal of Financial and Quantitative Analysis, 33 (1998), 255–289.CrossRefGoogle Scholar
Cornelli, F., and Goldreich, D.. “Bookbuilding and Strategic Allocation.” Journal of Finance, 56 (2001), 2337–2369.CrossRefGoogle Scholar
Cornelli, F.; Goldreich, D.; and Ljungqvist, A.. “Pre-IPO Markets.” Working Paper, London Business School and New York University (2004).Google Scholar
Dorn, D. “Does Sentiment Drive the Retail Demand for IPOs?” Working Paper, Columbia University (2003).CrossRefGoogle Scholar
Glosten, L. R., and Milgrom, P. R.. “Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders.” Journal of Financial Economics, 14 (1985), 71–100.CrossRefGoogle Scholar
Habib, M., and Ljungqvist, A.. “Underpricing and Entrepreneurial Wealth Losses in IPOs.” Review of Financial Studies, 14 (2001), 433–458.CrossRefGoogle Scholar
Hanley, K.W. “The Underpricing of Initial Public Offerings and the Partial Adjustment Phenomenon.” Journal of Financial Economics, 34 (1993), 231–250.CrossRefGoogle Scholar
Jenkinson, T., and Jones, H.. “Bids and Allocations in European IPO Bookbuilding.” Journal of Finance, 59 (2004), 2309–2338.CrossRefGoogle Scholar
Jenkinson, T.; Morrison, A.; and Wilhelm, W.. “Why Are European IPOs So Rarely Priced Outside the Indicative Price Range?” Working Paper, Oxford University (2004).Google Scholar
Leland, H., and Pyle, D.. “Information Asymmetries, Financial Structure, and Financial Intermediation.” Journal of Finance, 32 (1977), 371–387.CrossRefGoogle Scholar
Lewbel, A. “Constructing Instruments for Regressions with Measurement Error When No Additional Data Are Available, with an Application to Patents and R&D.” Econometrica, 65 (1997), 1201–1213.CrossRefGoogle Scholar
Ljungqvist, A., and Wilhelm, W.. “IPO Pricing in the Dot-Com Bubble.” Journal of Finance, 58 (2003), 723–752.CrossRefGoogle Scholar
Löffler, G.; Panther, P. F.; and Theissen, E.. “Who Knows What When? The Information Content of Pre-IPO Market Prices.” Working Paper, University of Frankfurt/Main (2002).CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “Why Don't Issuers Get Upset about Leaving Money on the Table in IPOs?” Review of Financial Studies, 15 (2002), 413–443.CrossRefGoogle Scholar
Loughran, T., and Ritter, J. R.. “Why Has Underpricing Changed over Time?” Financial Management, 33 (2004), 5–37.Google Scholar
Lowry, M., and Schwert, G. W.. “IPO Market Cycles: Bubbles or Sequential Learning?” Journal of Finance, 57 (2002), 1171–1200.CrossRefGoogle Scholar
Nyborg, K. G., and Sundaresan, S.. “Discriminatory Versus Uniform Treasury Auctions: Evidence from When-Issued Transactions.” Journal of Financial Economics, 42 (1996), 63–104.CrossRefGoogle Scholar
Pichler, P., and Stomper, A.. “Primary Market Design: Direct Mechanisms and Markets.” Working Paper, Institute for Advanced Studies and University of Vienna (2004).Google Scholar
Titman, S., and Trueman, B.. “Information Quality and the Valuation of New Issues.” Journal of Accounting and Economics, 8 (1986), 159–172.CrossRefGoogle Scholar