Optimal IPO design with informed trading

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Title: Optimal IPO design with informed trading
Authors: Rousseau, Fabrice
Parlane, Sarah
Permanent link: http://hdl.handle.net/10197/41
Date: May-2007
Abstract: We characterize optimal IPO design in the presence of distinct adverse selection problems: one affecting the IPO stage and one arising in the after-market. Allocating shares to an investor with superior information in the after-market depresses the share’s value to less informed investors. However, because it facilitates truthful interest report at the IPO stage it increases the expected offer price provided disadvantaged investors are suffciently unlikely to flip their share. We compare the book-building's outcome to that of uniform price auction. The auction can enhance the expected offer price only if it systematically allocates a share to the strategic trader.
Type of material: Working Paper
Publisher: University College Dublin; School of Economics
Series/Report no.: UCD Centre for Economic Research working paper series 2007; WP07/06
Keywords: Initial Public OfferBook-buildingAuctionInformed tradingDealer market
Subject LCSH: Going public
Securities
Secondary market
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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