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IPO Pricing Mechanisms in the Presence of When-Issued Markets

Author

Listed:
  • Pegaret Pichler

    (Northeastern University, Boston, USA;
    Vienna Graduate School of Finance, Vienna, Austria)

  • Alex Stomper

    (Humboldt University, Berlin, Germany)

Abstract

In some countries, it is common that initial public offerings (IPOs) are preceded by forward ("when-issued") trading of the shares; in the US, such trading is prohibited. We analyze the effect of when-issued trading on the pricing and allocation of IPO shares. We demonstrate that the optimal selling mechanism in the presence of when-issued trading differs qualitatively from the optimal mechanism if such trading is prohibited. Furthermore we show that trading rules in the when-issued market can be designed so that allowing when-issued trading results in an increase in expected issue proceeds.

Suggested Citation

  • Pegaret Pichler & Alex Stomper, 2014. "IPO Pricing Mechanisms in the Presence of When-Issued Markets," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 4(03), pages 1-31.
    • Handle: RePEc:wsi:qjfxxx:v:04:y:2014:i:03:n:s2010139214500165
    DOI: 10.1142/S2010139214500165
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