Auctions vs. Bookbuilding and the Control of Underpricing in Hot IPO Markets

Francois Derrien () and Kent Womack

The Review of Financial Studies, 2003, vol. 16, issue 1, 31-61

Abstract: Market returns before the offer price is set affect the amount and variability of initial public offering (IPO) underpricing. Thus an important question is "What IPO procedure is best adapted for controlling underpricing in "hot" versus "cold" market conditions?" The French stock market offers a unique arena for empirical research on this topic, since three substantially different issuing mechanisms (auctions, bookbuilding, and fixed price) are used there. Using 1992--1998 data, we find that the auction mechanism is associated with less underpricing and lower variance of underpricing. We show that the auction procedure's ability to incorporate more information from recent market conditions into the IPO price is an important reason. Copyright 2003, Oxford University Press.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (114)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Auctions vs. Book-building and the Control of Underpricing in Hot IPO Markets (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:16:y:2003:i:1:p:31-61

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().