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Some first day pop is natural even with auctions, because the issue price has to be a lowest that buyers support. Consider a company that wants to raise $100.
by buzzdenver 11y ago
Some first day pop is natural even with auctions, because the issue price has to be a lowest that buyers support.
Consider a company that wants to raise $100. Suppose there are 19 buyers who value a share at all different prices from $1 to $19, and are willing to buy 1 share each. The issue price will be $10. Those who offered $1-$9 will not get an allocation; those who offered from $10 to $19 will. The buyer who thinks a share is worth $19 will probably buy some at a > than $10 price, so voila a pop.
- tdaltonc 11y agoWhat about the guy who thinks it's worth $1? Wouldn't he attempt to short the stock immediately after the end of the auction, canceling the pop?
- whatok 11y agoWhile it's possible, in practice it's generally difficult to short IPOs because your broker needs to locate shares and underwriter restrictions in the borrow process.
- buzzdenver 11y agoWhat whatok said, plus there's always a less of an appetite to short a stock than to be long.