Valuation Uncertainty and Short-Sales Constraints: Evidence from the IPO Aftermarket

Panos N. Patatoukas (), Richard G. Sloan () and Annika Yu Wang ()
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Panos N. Patatoukas: Haas School of Business, University of California, Berkeley, California 94720
Richard G. Sloan: Marshall School of Business, University of Southern California, Los Angeles, California 90089
Annika Yu Wang: Bauer College of Business, University of Houston, Houston, Texas 77204

Management Science, 2022, vol. 68, issue 1, 608-634

Abstract: We use the initial public offering (IPO) setting to provide evidence that the combination of valuation uncertainty and short-sales constraints generates significant equity market mispricing. The IPOs that we predict to be most susceptible to overpricing in the immediate aftermarket have first-day returns of +47% and lockup expiration returns of − 9%. Our detailed analysis of securities lending market data confirms that these IPOs experience severe short-sales constraints that peak around the lockup expiration. Our paper both explains the anomalous pricing of IPOs and highlights the importance of valuation uncertainty and short-sales constraints in explaining equity mispricing.

Keywords: short-sales constraints; valuation uncertainty; IPO pricing; equity mispricing (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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