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Q2241600
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From the IPO to the First Trade: Is Underpricing Related to the
Trading Mechanism?
Sonia Falconieri, Albert Murphy and Daniel Weaver
As documented by a vast empirical literature, IPOs are
characterized by underpricing. Most of the theoretical literature
has linked the size of underpricing to the IPO procedure used on
the primary market. In this paper, by using a matched sample of
NYSE and Nasdaq IPOs, we show that the size of underpricing
also depends on the trading method used in the IPO
aftermarket.
There are two major methods of opening trading of initial
public offerings (IPOs) in the U.S. The NYSE is an order-driven
market ....51.... a call auction allows supply and demand to be
aggregated (at one location) prior to the start of trading. ....52.... ,
Nasdaq is a quote-driven market. Dealers can only specify their
best quotes, and participants have ....53.... idea of supply and
demand away from the inside quotes.
We propose a new proxy for ex ante uncertainty of firm
value and test it. Our results show that there is a larger level of
uncertainty at the beginning of trading on Nasdaq than on the
NYSE. This in turn is associated with larger levels of
underpricing for Nasdaq IPOs. We suggest that this may be due
to the different informational efficiency of the two trading
systems.
(http://www.nyse.com/marketinfo/p1020656068262.html?displayPage=%
2Fmarketinfo%2Fmarketinfo.html)
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