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Bookbuilding: How Informative is the Order Book?

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  • Cornelli, Francesca
  • Goldreich, David

Abstract

When using a formal bookbuilding procedure, underwriters observe the demand curves of investors as stated in the ?book? prior to pricing shares in an equity issue. The purpose of this Paper is to examine whether the investment bank uses the information in the book when setting the issue price, and whether this information can help predict subsequent secondary aftermarket prices. We examine the details of the institutional bids for shares for a sample of 63 international equity issues. We find that the issue price is closely related to the limit prices submitted by bidders. The level of oversubscription has a smaller but significant effect. The price primarily reflects the information in the price contingent bids of certain bidder types, such as large bidders and frequent bidders. Aftermarket returns in IPOs are positively correlated with oversubscription and elasticity of the demand.

Suggested Citation

  • Cornelli, Francesca & Goldreich, David, 2001. "Bookbuilding: How Informative is the Order Book?," CEPR Discussion Papers 2863, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2863
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    References listed on IDEAS

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    Cited by:

    1. Michelle Lowry & G. William Schwert, 2001. "Biases in the IPO Pricing Process," NBER Working Papers 8586, National Bureau of Economic Research, Inc.
    2. Lowry, Michelle & Schwert, G. William, 2004. "Is the IPO pricing process efficient?," Journal of Financial Economics, Elsevier, vol. 71(1), pages 3-26, January.

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    More about this item

    Keywords

    Bookbuilding; Ipos; Equity issues;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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