The Optimality of Uniform Pricing in IPOs: An Optimal Auction Approach* | Zendy

Moez Bennouri | Zendy; Sonia Falconieri | Zendy

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The Optimality of Uniform Pricing in IPOs: An Optimal Auction Approach*

Author(s) -

Moez Bennouri,

Sonia Falconieri

Publication year - 2008

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfn006

Subject(s) - initial public offering , constraint (computer aided design) , budget constraint , microeconomics , contrast (vision) , economics , optimal allocation , mathematical optimization , computer science , finance , mathematics , geometry , artificial intelligence

This paper uses an optimal auction approach to investigate the conditions under which uniform pricing in IPOs is optimal. We show that the optimality of a uniform price in IPOs depends crucially on whether the (optimal) allocation rule is restricted. These restrictions may stem from the retail investors' budget constraint and/or from the institutional investors' preferences. We show that the main determinant of the optimality of a uniform pricing rule is the existence and the shape of the retail investors' budget constraint. In contrast, institutional investors' preferences are shown to mainly affect the optimal allocation rule. Copyright 2008, Oxford University Press.

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