IPO Pricing Mechanisms in the Presence of When-Issued Markets

Pegaret Pichler () and Alex Stomper
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Pegaret Pichler: Northeastern University, Boston, USA;

Quarterly Journal of Finance (QJF), 2014, vol. 04, issue 03, 1-31

Abstract: In some countries, it is common that initial public offerings (IPOs) are preceded by forward ("when-issued") trading of the shares; in the US, such trading is prohibited. We analyze the effect of when-issued trading on the pricing and allocation of IPO shares. We demonstrate that the optimal selling mechanism in the presence of when-issued trading differs qualitatively from the optimal mechanism if such trading is prohibited. Furthermore we show that trading rules in the when-issued market can be designed so that allowing when-issued trading results in an increase in expected issue proceeds.

Keywords: Initial public offerings; bookbuilding; mechanism design (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1142/S2010139214500165

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