Kiel Working Papers, Kiel Institute for World Economics
No 1259:
Underpricing and Index Excess Returns
Peter Nippel, Christian Pierdzioch and Andrea Schertler
Abstract: We study the link between underpricing of initial public
offerings (IPOs) and index excess returns in secondary markets. We use a
theoretical model to argue that underpricing of IPOs raises investors’
attention and, thereby, triggers investments in secondary markets. Our
theoretical model implies that such investments should give rise to
positive index excess returns in secondary markets. The results of our
empirical tests, based on a dataset of stocks from the Neuer Markt and the
Nouveau Marché, are in line with the implication of our theoretical
model.
Keywords: underpricing, index excess returns, IT firms; (follow links to similar papers)
JEL-Codes: G14,; N24; (follow links to similar papers)
42 pages, October 2005
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