Fragmentation, Ex-post Uncertainty and Ipo Underpricing
This paper investigates both theoretically and empirically the impact of market structure on the price discovery process at the opening of trading of IPOs. Recent papers suggest that IPO price uncertainty is not fully resolved at the offering, but continues into the aftermarket. Our model predicts that this ex-post uncertainty is related to the level of fragmentation in the aftermarket and that consolidated markets are more efficient in resolving it than fragmented markets. Our empirical analysis provides strong evidence that IPOs in fragmented markets exhibit a larger ex-post uncertainty and, consequently, a substantially larger underpricing than consolidated markets.
Area: Capital Structure and Corporate Finance
Keywords: underpricing, ex post uncertainty, trading platforms.
