Finance Seminar（2015-20）

Topic: Pre-Market Trading and IPO Pricing

Speaker: Yiming Qian, University of Iowa

Time: Wednesday, 17 June,10:30-11:45

Location: Room 217, Guanghua Building 2

Abstract: By studying the only mandatory pre-IPO market in the world – Taiwan’s Emerging Stock Market (ESM), we document that pre-market prices are very informative about post-market prices and that the pre-market price efficiency increases with trading liquidity of the stock. Pre-market prices are utilized in IPO pricing. The ESM price-earnings ratio shortly before the IPO explains about 90%of the variation in the offer price-earnings ratio. Moreover, the more informative the pre-market price is, the higher the offer price (i.e., the lower the underpricing). However, the average IPO underpricing level remains high despite the pre-market (with an average first-day return of 55%). Our evidence suggests that agency problems between underwriters and issuers can lead to high levels of underpricing even when there is little information asymmetry or valuation uncertainty about the stock.