2013-03: IPO underpricing in a simultaneous equations model of supply and demand: Evidence from a market of retailers (Working paper)

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Author(s)
Alanazi, Ahmed S.
Liu, Benjamin
Year published
2013
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This paper fulfills a great need for empirical evidence on the impacts of the supply, demand and allocation of shares on the underpricing of initial public offerings (IPOs). Exploiting a unique dataset and the institutional framework of Saudi Arabian IPOs, we construct a simultaneous equations model of supply and demand. Our evidence indicates that both curves of the market listing day supply and demand of IPOs are significantly negatively sloped with the supply curve being much steeper and above the demand curve. This is consistent with the idea that subscribers "flip" in IPOs immediately on the listing day to capture ...
View more >This paper fulfills a great need for empirical evidence on the impacts of the supply, demand and allocation of shares on the underpricing of initial public offerings (IPOs). Exploiting a unique dataset and the institutional framework of Saudi Arabian IPOs, we construct a simultaneous equations model of supply and demand. Our evidence indicates that both curves of the market listing day supply and demand of IPOs are significantly negatively sloped with the supply curve being much steeper and above the demand curve. This is consistent with the idea that subscribers "flip" in IPOs immediately on the listing day to capture instantaneous profits. The excess demand that occurs during the subscription period becomes excess supply once the shares start floating on the listing day. Our study is the first move towards addressing the underpricing puzzle in a supply and demand context.
View less >
View more >This paper fulfills a great need for empirical evidence on the impacts of the supply, demand and allocation of shares on the underpricing of initial public offerings (IPOs). Exploiting a unique dataset and the institutional framework of Saudi Arabian IPOs, we construct a simultaneous equations model of supply and demand. Our evidence indicates that both curves of the market listing day supply and demand of IPOs are significantly negatively sloped with the supply curve being much steeper and above the demand curve. This is consistent with the idea that subscribers "flip" in IPOs immediately on the listing day to capture instantaneous profits. The excess demand that occurs during the subscription period becomes excess supply once the shares start floating on the listing day. Our study is the first move towards addressing the underpricing puzzle in a supply and demand context.
View less >
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Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
Note
Finance
Subject
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
Initial public offerings
supply and demand
underpricing
allocation