Biases in the IPO Pricing Process
NBER Working Paper No. 8586
By investigating the entire IPO pricing process, beginning when the offering is filed, the paper contributes to the existing literature along four dimensions. First, price updates during the registration period are predictable based on firm and offer-specific characteristics known at the time the offer is filed. Second, price updates reflect market movements prior to the initial filing date as well as during the registration period. Third, positive and negative information learned during the registration period affect the offer price asymmetrically. Finally, public and private information learned during the registration period have different effects on the offer price. While a number of the biases that we uncover are consistent with one or more theories regarding IPOs, many remain a puzzle.
Published: Schwert, G. William and Michelle Lowry. "Is the IPO Pricing Process Efficient?" Journal of Financial Economics 71 (January 2004): 3-26.