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Optimal Initial Public Offering design with aftermarket trading

Rousseau, Fabrice and Parlaine, Sarah (2009) Optimal Initial Public Offering design with aftermarket trading. Working Paper. Department of Economics Finance & Accounting, Maynooth. (Unpublished)

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Official URL: http://eprints.nuim.ie/1640/1/N2041109.pdf

Abstract

We characterize the optimal pricing and allocation of shares in the presence of distinct adverse selection problems. Some investors have private information at the time of the IPO and sell their shares in the after-market upon facing liquidity needs. Others learn their private interest in the after-market, and sell their shares strategically. The optimal mechanism trades-off informational rents and rents to strategic traders. Flipping facilitates truthful information revelation. When liquidity needs are likely, it is optimal to allocate all shares to investors informed at the IPO stage. Otherwise, some shares are allocated to those who trade strategically in the after-market.

Item Type: Monograph (Working Paper)
Keywords: Optimal pricing; Allocation of shares; IPO; Initial public offerings; Trade; Market; Benveniste and Spindt.
Subjects: Social Sciences > Finance
Social Sciences > Economics
Item ID: 1640
Depositing User: Ms Sandra Doherty
Date Deposited: 04 Nov 2009 15:54
Publisher: Department of Economics Finance & Accounting
URI:

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