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Preopening auctions and price discovery in initial public offerings

Author

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  • Bhurjee, Keerat
  • Saragur Ramanna, Vishwanatha

Abstract

Using a proprietary dataset for 97 IPO firms, we examine investors’ trading activities in newly listed firms during the one-hour preopening auction on the Bombay Stock Exchange on the listing day. We document significant price discovery during the preopen. We find that the offer-to-first quote returns largely explain IPO initial returns. The probability of informed trading is much higher during the preopen than during the trading day, and trades by institutional investors are more informative than those by other investors. We also find that illiquidity decreased after the introduction of the preopening auction.

Suggested Citation

  • Bhurjee, Keerat & Saragur Ramanna, Vishwanatha, 2024. "Preopening auctions and price discovery in initial public offerings," Journal of Banking & Finance, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:jbfina:v:165:y:2024:i:c:s0378426624001134
    DOI: 10.1016/j.jbankfin.2024.107196
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    More about this item

    Keywords

    Market microstructure; Financial market policy; IPO; Corporate finance;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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