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    A market microstructure explanation of IPOs underpricing

    Leoni, Dr Patrick (2007) A market microstructure explanation of IPOs underpricing. UNSPECIFIED. (Unpublished)

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    In a typical IPO game with first-price auctions, we argue that risk-averse investors always underbid in equilibrium because of sucbjective interpreetations of the firm' communications about its actual value and resulting risk aversion about the likelihood of facing investors with higher valuations. We show that the noisier the investors' inferences of the firm' value(in the sense of first-order stochastic dominance) the higher the underbidding level. Our finding is independent of winner's curse effects and possible irrational, and allows for a testable theory.

    Item Type: Other
    Keywords: IPO underpricing; first-price auction,; risk aversion; firm' communication
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 645
    Depositing User: Ms Sandra Doherty
    Date Deposited: 09 Aug 2007
    Refereed: No
    Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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