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Sticky Prices. IPO Pricing on Nasdaq and the Neuer Markt.

Aussenegg, Wolfgang and Pichler, Pegaret and Stomper, Alex (2002) Sticky Prices. IPO Pricing on Nasdaq and the Neuer Markt. Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science", 91. SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, Vienna.

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Abstract

This paper examines the IPO pricing processes of two different markets, each of which employs bookbuilding methods for marketing the IPO shares. For each market we investigate two questions: Does bookbuilding serve mainly as a method for distributing shares, or also as a means for gathering information? And, to what extent do underwriters respond in IPO pricing to any information that they obtain through bookbuilding? We find that a direct comparison of these two markets sheds light on the bookbuilding process in each. For Nasdaq IPOs we find evidence consistent with informational rents being earned by investors for providing information during bookbuilding. On the Neuer Markt there is no such evidence. Instead, we find evidence consistent with rents being paid for information that helps underwriters to set indicative price ranges prior to bookbuilding. The two markets differ further in how underwriters respond to information in pricing IPOs. For the Neuer Markt, this response is severly constrained since underwriters do not set prices above the price ranges. We estimate the total cost of this "restriction" to be approximately one billion Euros for our sample of IPOs. While there are no such apparent restrictions for Nasdaq, we show that also on this market IPO prices are "sticky" in that underwriters respond less to information received later in the pricing process.

Item Type: Paper
Keywords: Initial public offerings / underpricing
Classification Codes: JEL G32
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Departments > Informationsverarbeitung u Prozessmanag. > Informationswirtschaft
Departments > Informationsverarbeitung u Prozessmanag. > Produktionsmanagement > Taudes
Departments > Marketing > Service Marketing und Tourismus
Depositing User: Repository Administrator
Date Deposited: 17 Jan 2003 10:33
Last Modified: 15 Sep 2017 11:47
URI: http://epub.wu.ac.at/id/eprint/1524

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