Securities Law Commons^™

Inefficiency In The Market For Initial Public Offerings, Jonathan A. Shayne, Larry D. Soderquist

Vanderbilt Law Review

The market for initial public offerings ("IPOs") of common stock is inefficient, and this fact is not reflected in securities law. New statistical evidence shows that, on average, companies go public at times when the general stock market is priced 22.7% higher than its normal level, and that underwriters sell IPO stock at a further 12.5% premium to the prevailing, high market. These two figures are based on the long-term performance of IPOs and comparable non-IPO stocks over the period 1970 to 1990, and are consistent with the beliefs of knowledgeable practicing investors.

The value and number of IPOs varies …