The efficient IPO market hypothesis: theory and evidence

James, Kevin R. and Valenzuela, Marcela (2019) The efficient IPO market hypothesis: theory and evidence. Systemic Risk Centre Discussion Papers (87). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

We derive the optimal underwriting method and the quantitative 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:	Monograph (Discussion Paper)
Official URL:	https://www.systemicrisk.ac.uk/
Additional Information:	© 2019 The Authors
Divisions:	Systemic Risk Centre Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies
Date Deposited:	31 May 2023 13:21
Last Modified:	16 Sep 2023 00:00
URI:	http://eprints.lse.ac.uk/id/eprint/118934

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