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Underpricing and Ex Post Value Uncertainty
Author(s) -
Falconieri Sonia,
Murphy Albert,
Weaver Daniel
Publication year - 2009
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2009.01036.x
Subject(s) - initial public offering , ex ante , valuation (finance) , proxy (statistics) , explanatory power , economics , econometrics , value (mathematics) , predictive power , financial economics , market value , business , actuarial science , monetary economics , accounting , statistics , mathematics , philosophy , epistemology , macroeconomics
As documented by a vast empirical literature, initial public offerings (IPOs) are characterized by underpricing. A number of papers have shown that underpricing is directly related to the amount of ex ante uncertainty concerning the IPOs valuation. Recent theoretical papers propose that not all value uncertainty is resolved prior to the start of trading, but rather continues to be resolved in the beginning of the after market. We term this type of uncertainty as ex post value uncertainty and develop proxies for it. We find strong support for the existence of ex post value uncertainty and find that including a proxy for it more than doubles the explanatory power of previous models.