-  תקציר מפירסומי מרכז מחקר orif לשוק ההון  -

 Allocations, Adverse Selection and Cascades in IPOs

Three major theories of IPO underpricing are examined, using unique data from Israel where the allocation to subscribers is by equal proration. This enables to simulate the return earned by uninformed investors. Consistent with Rock’s (1986) theory of adverse selection, allocations were negatively related to underpricing. However, uninformed investors earned a negative allocation-weighted excess return, although the average IPO excess return was 12%. Welch’s (1992) theory of information cascades is supported: demand is either extremely high or there is undersubscription, with very few cases in between. Also supported is the proposition that underpricing is a means to increase ownership dispersion.