Initial Public Offering Underpricing Assignment
February 18th, 2020
An initial public offering (IPO) is when a company offers to sell its shares for the public for the first time.
a) What is IPO underpricing?
b) Ritter studies all Finnish IPOs and finds that they are underpriced, on average, by 14.2%. To take advantage of the IPO underpricing phenomenon, he formulates a trading strategy by subscribing every Finnish IPO with the same number of shares (e.g., 1,000). Is this trading strategyprofitable? Explain.
c) The degree of IPO underpricing varies significantly across countries ranging from 157.7% in China and 50.8% in Greece to 6.4% in Canada and 5.7% in Argentina. Propose a simple explanation(s) for such a large variation in IPO underpricing across countries.Get Finance homework help today