Underpricing and Ex Post Value Uncertainty |
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| Authors: | Sonia Falconieri Albert Murphy† Daniel Weaver‡ |
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| Institution: | Sonia Falconieri is an Associate Professor in the Brunel Business School, Brunel University, Uxbridge, Middlesex, UK.;Albert Murphy is an Assistant Professor in the Department of Finance and Business Economics, State University of New York, Old Westbury, NY.;Daniel Weaver is an Associate Professor in the Department of Finance and Economics, Rutgers, The State University of New Jersey, Piscataway, NJ. |
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| Abstract: | As documented by a vast empirical literature, initial public offerings (IPOs) are characterized by underpricing. A number of papers have shown that underpricing is directly related to the amount of ex ante uncertainty concerning the IPOs valuation. Recent theoretical papers propose that not all value uncertainty is resolved prior to the start of trading, but rather continues to be resolved in the beginning of the after market. We term this type of uncertainty as ex post value uncertainty and develop proxies for it. We find strong support for the existence of ex post value uncertainty and find that including a proxy for it more than doubles the explanatory power of previous models. |
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