This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by non‐Section 20…
Abstract
This study examines corporate equity initial public offerings (IPOs) underwritten by Section 20 subsidiaries of commercial banks relative to those underwritten by non‐Section 20 underwriters (investment houses). Consistent with a ‘net certification effect’ for banks, corporate equity IPOs underwritten by Section 20 subsidiaries have lower underpricing than those underwritten by investment houses. Secondly, commercial banks brought a relatively larger proportion of small equity IPO issues to market, during the period of this study. Contrary to the contention that universal banking restricts the availability of financing to small firms, bank underwriting appears to benefit small firms. Further, Section 20s do not increase underwriting fees to offset the effect on potential profits from lower underpricing. This study also finds that the focus of Section 20 on small IPOs results in higher quality for the IPOs they underwrite, as indicated by a lower standard deviation of underpricing.
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This paper examines the pricing of Initial Public Offerings (IPOs) in the secondary market on the first day of aftermarket trading. The focus of this study is on shifts in average…
Abstract
This paper examines the pricing of Initial Public Offerings (IPOs) in the secondary market on the first day of aftermarket trading. The focus of this study is on shifts in average returns over time, and does not necessarily address the cross‐sectional implications of a risk/return relation. The focus of the study is to examine the reasonableness of first day trading prices of IPOs. Initial returns of IPOs, issued during the period, January 1, 1999 to June 30, 2000, reached as much as 800 per cent, and the average initial return for the study sample was of 76 per cent. An important question is whether the high initial returns, observed during this time period, are appropriate for the level of risk associated with these new issues. Related to this question is the pricing of these securities by investment bankers (i.e. the offer price) and the pricing of the securities in aftermarket trading (i.e the secondary market). The results of this study indicate the presence of speculative excesses in the initial pricing of IPOs in aftermarket trading during 1999 and part of 2000. Further there is no indication that IPOs are excessively underpriced by investment bankers during the study period, January 1, 1997 through June 30, 2000. The results of this study may be useful to investors in making decisions about purchasing new public securities in the secondary market.
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This study seeks to determine whether changes in future prices are determined by the shifting of price risk and the presence of risk premiums in transactions between hedgers and…
Abstract
This study seeks to determine whether changes in future prices are determined by the shifting of price risk and the presence of risk premiums in transactions between hedgers and speculators. The alternative explanation is that the returns accruing to speculators are a result of the superior forecasting ability processed by speulators. The study examines the characteristics of price movements and net hedging positions in twenty‐nine futures markets.The results of the study are consistent with the presence of both risk shifting to speculators and superior forecasting ability of speculators in futures markets. While the risk bearing explanation may be valid for particular markets under special conditions, forecasting ability may be present in other markets.The implication is useful for investors in determining which markets may reflect ongoing and unidirectional price changes.