IPOs and venture backed IPOs

More about the book

Over the last two decades, underpricing has been discussed extensively and the huge body of literature suggests that some major issues still remain unsolved. How can massive first-day mispricings sustain even if most involved parties know about the empirical (and reliable) fact of underpricing? Especially venture backed IPOs show persistent underpricing. This book provides the very essential root of the problem by focusing on the mispricing problem from a theoretical standpoint. The author takes several subsequent steps in order to address the fundamentals of this topic by applying models from game theory and related literature. After discussing IPO fundamentals and its signalling mechanisms he explains how informational asymmetries determine sentiment through beliefs and thus create mispricing opportunities. Mispricing can arise even if all investors act completely rational. Even if informational asymmetry is weakened, mispricing can persist due to weak signals and noise traders. Additionally, the author connects the dots between game-theoretical approaches and approaches from behaviouristic theories. As a conclusion, he looks at IPO stocks as an asset class of its own due to its unique characteristics.