TY  - JOUR
AU  - Lowry,Michelle
AU  - Officer,Micah S.
AU  - Schwert,G. William
TI  - The Variability of IPO Initial Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12295
PY  - 2006
Y2  - June 2006
UR  - http://www.nber.org/papers/w12295
L1  - http://www.nber.org/papers/w12295.pdf
N1  - Author contact info:
Michelle Lowry
Smeal College of Business
Penn State University
312 Business Building
University Park, PA  16802
E-Mail: mlowry@psu.edu

Micah S. Officer
702F HOH, Marshall School of Business
University of Southern California
Los Angeles, CA 90089-1427
E-Mail: officer@marshall.usc.edu

G. William Schwert
William E. Simon Graduate School of Business Admin
University of Rochester
Rochester, NY  14627
Tel: 585/275-2470
Fax: 585/461-5475
E-Mail: Schwert@schwert.ssb.rochester.edu
AB  - The monthly volatility of IPO initial returns is substantial, fluctuates dramatically over time, and is considerably larger during "hot" IPO markets. Consistent with IPO theory, the volatility of initial returns is higher among firms whose value is more difficult to estimate, i.e., among firms with higher information asymmetry. Our findings highlight underwriters' difficulty in valuing companies characterized by high uncertainty, and, as a result, raise serious questions about the efficacy of the traditional firm commitment underwritten IPO process. One implication of our results is that alternate mechanisms, such as auctions, may be beneficial, particularly for firms that value price discovery over the auxiliary services provided by underwriters.
ER  -