The Economics of Not Knowing: A Symmetric Ignorance Theory of IPO Pricing

Michel Antoine Habib and Alexander Ljungqvist
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Michel Antoine Habib: University of Zurich; Centre for Economic Policy Research (CEPR)
Alexander Ljungqvist: Centre for Economic Policy Research (CEPR); Swedish House of Finance

No 26-03, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We develop a unified framework in which IPO practices operate not to manage asymmetric information but to prevent it from arising. Costly information acquisition gives investors an option to pick and choose among offerings, forcing the underwriter to offer a discount. IPO practices lower the value of this option-by diminishing the quality, relevance, or payoff of investor information-and thereby reduce the discount required to deter information production. This information-prevention perspective offers a coherent explanation for otherwise disparate practices, resolves persistent empirical puzzles about IPO allocations, and yields new implications for cornerstone investors and the JOBS Act.

Keywords: IPO Underpricing; Information Acquisition; Symmetric Ignorance; Bookbuilding Mechanisms; Information Deterrence; Allocation Discretion (search for similar items in EconPapers)
JEL-codes: D82 G24 G28 G32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2026-01
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2603

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