Is the IPO Pricing Process Efficient?
Michelle B. Lowry
Drexel University, Philadelphia, PA 19104
G. William Schwert
University of Rochester, Rochester, NY 14627
and National Bureau of Economic Research
Financial Economics 71 (January 2004) 3-26
This paper investigates underwriters' treatment of public information throughout
the IPO pricing process. Two key findings emerge. First, public information
is not fully incorporated into the initial price range. While the economic
magnitude of the bias is small, it is puzzling because it is not clear who
benefits from it. Further, it indicates that the filing range midpoint is
not an unbiased predictor of the offer price, as prior literature has assumed.
Second, while public information is similarly not fully incorporated into
the offer price, the small economic significance of this relation indicates
that the IPO pricing process is almost efficient.
Key words: IPO, Underpricing, Private Information, Learning, Market
JEL Classifications: G32, G24, G14
Cited 98 times in the SSCI and SCOPUS through 2014
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