Offer price

: a contribution to the explanation of the IPO underpricing puzzle

Abstract

The IPO underpricing phenomenon has inspired a significant number of explanatory theories over the last decades. Fascinatingly, one of the variables that would allow an interesting revision of the past literature is, at the same, one of the least studied in this field: the offer price. Thus, this study explores the relation between the offer price and the level of underpricing, its dynamics throughout the IPO cycle and the implication of these findings to prior studies. Based in a univariate, bivariate and multivariate analysis, our conclusions are threefold: (i) there is a positive relation between the offer price and the first day return; (ii) this relation gets stronger in hot IPO markets; (iii) our findings shed certain doubts on the premises and conclusions of some asymmetry of information theories and corroborate the view that IPO underpricing can be seen as an illiquidity premium.

Date of Award	24 Apr 2015
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)