Recent polls have shown rising support for the country's Labour Party against Prime Minister Theresa May's Conservative party, with a Labour victory underpriced
by markets, much like the Brexit vote was.
When companies go public, the shares that are sold tend to be underpriced
, in that the share price jumps on the first day of trading.
This study finds that on average IPOs are underpriced
On average, underpriced
IPOs exhibit higher trading activity than overpriced IPOs (Miller and Reilly, 1987; Hanley, 1993; Schultz and Zaman, 1994; Zheng and Li, 2008), lower bid-ask spreads (Pham, Kalev, and Steen, 2003; Li, Zheng, and Melancon, 2005), and lower adverse selection costs (Li, McInish, and Wongchoti, 2005).
A score of 100 indicates that all markets in the index are underpriced
and zero that all markets are fully priced.
The report shows that the most underpriced
markets are to be found in regions outside of London, while most London markets are now fairly priced due to lower yields than those in the regions.
Another anomaly, that has considerably received more attention, is that IPOs appear to be substantially underpriced
and exhibit positive first day returns on average (Ritter, 1984).
While underpricing cannot remove the allocation bias against uninformed investors (since the informed still buy the most underpriced
offerings), the uninformed can now expect, on average, to at least break even (Jenkinson and Ljunqvist, 2001).
Chowdhry and Sherman (1996) argue that when the offer price is set before the consummation of the offering, the IPOs will be more underpriced
Ghosh, Nag, and Sirmans (2000) claim that underpriced
IPOs are likely to follow by seasoned equity offering in near future.
These results are driven by the level of SEO underpricing in the NASDAQ market where more than 80% of their SEOs are underpriced
If the IPO price is less than its first day closing price, the company's shares were underpriced
bu the underwriters in the IPO (Heeley, Matusik, & Jain, 2007).