Library Header Image
LSE Research Online LSE Library Services

IPO underpricing during the boom: a block-booking explanation

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.

PDF - Published Version
Download (415kB) | Preview


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:
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: 15 Sep 2023 22:57

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics