publication . Article . 2003

Auctions vs. Book-building and the Control of Underpricing in Hot IPO Markets

Derrien, François; Womack, Kent L.;
Open Access English
  • Published: 01 Jan 2003
  • Publisher: HAL CCSD
Abstract
International audience; 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 incorpo...
Subjects
free text keywords: Book-building, Auctions, IPO Markets, [ SHS.GESTION.FIN ] Humanities and Social Sciences/Business administration/domain_shs.gestion.fin, Economics and Econometrics, Accounting, Finance, [SHS.GESTION.FIN]Humanities and Social Sciences/Business administration/domain_shs.gestion.fin
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