1. Are IPOs Underpriced? Discussion by Ayako Yasuda

2. Central Question 1.Information Asymmetry: textbook explanation for IPO underpricing 2.“Money Left on the Table” during Internet Bubble 3.Flipping/Kickbacks => Do underpricing and undervaluation mean the same thing?  Are IPO markets efficient?

3. Two Theory Camps 1.Efficient Market Grinblatt and Hwang(1989): Signaling => The more undervaluation, the higher first-day return 2. Inefficient Market Daniel et al.(1998): Overconfidence => The more overvaluation, the higher first-day return

4. Empirical Verdict Median IPO is overvalued at the offer, not undervalued Overvalued IPO earn higher first-day returns than undervalued IPOs Overvalued IPOs underperform undervalued IPOs in the long-run => Support inefficient markets, or behavioral theories of investor overconfidence

5. Other Empirical Findings IPO stocks don’t do worse than their industry peers (Brav and Gompers)  IPOs broadly undeperform “Cold IPOs” continue to do worse then “hot” (but not extra hot) IPOs (Krigman et al.)  Undervalued IPOs eventually do better Flipping is most prevalent among extra-hot IPOs

6. Remaining Questions Why would any institutional investors buy any IPO stock? If IPO markets have been inefficient, will the inefficiency necessarily persist?