•   •   •   •

Download the Paper (211 K, PDF file) - July 1, 2004 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
Book-building, the prevailing method for IPO's, is widely considered flawed, because it results in stock under-pricing. Auction-IPO, on the other hand, is considered, by conventional wisdon, an alternative method that will eliminate the under-pricing. This paper shows how, contrary to customary belief, auction-IPO's may well result in under-pricing. In auction-IPO's, the under-pricing of the stock price is induced by undetected investors' manipulative strategic behavior. I analyze the requirements for such strategic behavior in a linear model. To reduce investors' incentive to manipulate their bid in the auction, this paper proposes to restrict auction participants from trading in the aftermarket immediately following the IPO.

SUGGESTED CITATION:
Mira Ganor, "A Proposal to Restrict Manipulative Strategy in Auction IPO's" (July 1, 2004). Berkeley Program in Law & Economics, Working Paper Series. Paper 166.
http://repositories.cdlib.org/blewp/art166