Institut numerique

Section 1- Short run IPO anomaly and traditional explanations

Introduction:

The underpricing is a short run anomaly characterizing the IPO market. This phenomenon has inspired a large theoretical literature over decades trying to give a relevant and a convincing explanation to this first day phenomenon. Underpricing anomaly has intrigued academics and practitioners over the past three decades and has generated considerable research aimed at explaining the apparent incongruities with rational asset pricing. While this research effort has provided numerous analytical advances and empirical insights and a large list of explanations were presented, it is fair to say that this anomaly is not satisfactorily resolved. It is still a puzzle sparking much academic attention until now and requiring other explanations and much considerable research effort.

In this first section, I begin in the first paragraph by a definition of the underpricing anomaly and an illustration of its persistence over the time, all over the world and for all the industries, an order to have a complete idea about this phenomenon. I summarizing in a second paragraph the most important results and findings reached by the researchers that have been interested in this field and have been interested in explaining the short run IPO puzzle. These findings can be classified in two main categories:

– Explanations based on informational asymmetry between the key parties which have been considered the most convincing explanations for decades by a large number of researchers.

– And theories asserting the informational transparency and lucidity and asserting the IPO market efficiency.

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