James, Kevin R. (2004) IPO underpricing during the boom: a block-booking explanation. Financial Markets Group Discussion Papers (481). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
A bank can efficiently underwrite individually difficult to value IPOs by offering them as a package deal to a stable coalition of investors (block-booking). Block-booking banks set offer prices to equalize downside risk across their offerings, not expected returns. Examining US IPOs over the 1986 to 2003 period, I find that this is so. Given the return distribution on non-tech IPOs during non-boom years, equalizing downside risk implies that the average initial return on tech/boom IPOs equals 48% (actual value: 46%). The block-booking theory accounts for both the direction and magnitude of differences in average initial returns across IPO types.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.lse.ac.uk |
| Additional Information: | © 2004 The Author |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies |
| Date Deposited: | 30 Jul 2009 15:36 |
| Last Modified: | 11 Dec 2024 18:38 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24679 |
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