Valuation Uncertainty and Short-Sales Constraints: Evidence from the IPO Aftermarket
Published Web Location
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2789879Abstract
We use the initial public offering (IPO) setting to provide evidence that the combination of valuation uncertainty and short-sales constraints generates significant equity market mispricing. The IPOs that we predict to be most susceptible to overpricing in the immediate aftermarket have first-day returns of +47% and lockup expiration returns of -9%. Our detailed analysis of securities lending market data confirms that these IPOs experience severe short-sales constraints that peak around the lockup expiration. Our paper both explains the anomalous pricing of IPOs and highlights the importance of valuation uncertainty and short-sales constraints in explaining equity mispricing.
Many UC-authored scholarly publications are freely available on this site because of the UC's open access policies. Let us know how this access is important for you.