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The efficient IPO market hypothesis: theory and evidence

James, Kevin R. and Valenzuela, Marcela (2020) The efficient IPO market hypothesis: theory and evidence. Journal of Financial and Quantitative Analysis, 55 (7). 2304 - 2333. ISSN 0022-1090

[img] Text (Efficient IPO market hypothesis) - Accepted Version
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Identification Number: 10.1017/S0022109019000784


We derive the optimal underwriting method and the quantitative initial public offering (IPO) pricing rule that this method implies in a market with informational frictions consisting of fully rational banks, issuers, and investors. In an efficient IPO market, an issuer's expected initial return will be determined entirely by the combination of this pricing rule and issuer fundamentals. Applying this rule, we find that we can explain the quantitative magnitude of the principal aspects of the time-series and cross-sectional variation in IPO average initial returns. We conclude that the IPO market is efficient.

Item Type: Article
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Additional Information: © 2020 Michael G. Foster School of Business, University of Washington
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
Date Deposited: 07 Apr 2020 10:51
Last Modified: 20 Jun 2024 21:30

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