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"The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure." Are shareholders now entit

"The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure." Are shareholders now entitled to a reward for going public? Opening day is over. FB is trading well below the IPO price, let alone the high. Nobody can blame that on opening day glitches. That means that the market would have clearly been more wrong to give it an opening-day "pop".

schraeds 14y ago
http://en.wikipedia.org/wiki/Market_sentiment http://en.wikipedia.org/wiki/Market_sentiment
lowboy 14y ago
No, but they should have a stable exchange with which to go public. I'm not an economist, but to me it makes sense that factors such as confidence would greatly affect the price of a stock, not just in the short term. The price of a company's stock isn't just representative of its value - all the trading and expected trading of that stock plays a factor. You could argue that it isn't a good system because it places less value on the companies being traded and more on the effects of trading itself, but within the current system I think people have a right to complain about a poorly-executed IPO.
- chimeracoder 14y ago
  See my comment above. If you assume that the underlying value of Facebook hasn't changed in the last week (a reasonable assumption - remember, we're dealing with the underlying value of the company, not the value of the stock on any given day), then there would be no reason for a bump to occur on the first day of trading except that the stock was incorrectly priced. The reason that a 'bump' occurs is that money is being left at the table - ideally, stocks should exhibit no bump, because that means that the company has priced their stock correctly. Any bump means that traders are reaping the profit of the increase in the stock's value, and that profit is what the company was seeking to gain by going public.
  - lowboy 14y ago
    Right, and I agree that the underlying value of FBComp hasn't changed. But that variability in the correctness of pricing of a stock is part of the game, is it not? As is the mis-estimation of a company's "true worth" by investors. If the problems with NASDAQ weren't present, and there was a first day bump as expected, I could see that instilling confidence in investors, driving demand for the stocks. Hence nanex's strongly worded quote about ripple effects. Do you disagree with that? Ultimately we'll never know what would have happened, but the negative ripple effects seem plausible.
  - Drbble 14y ago
    There is an argument that the IPO buyers from the roadshow deserve a premium for buying in bulk at a predetermined price before they have the full information of the open market.
chimeracoder 14y ago
Exactly. Let's assume that Day 0 = day of IPO, and Day -1 = the day before the IPO. Let's assume that the (unobserved) value of the stock on Day -1 is the 'true' underlying value of the stock. The only way that a glitch on opening day would have a permanent affect on the stock price is if the stock price on Day n (for all n > 1) is conditionally independent of the price on Day -1 given the price on Day 0. In other words, the best predictor of tomorrow's price is today's price, and yesterday's price adds no new information. This is a reasonable assumption, but if you believe that, it means you also believe that stock prices are essentially a random walk, in which case there is never any convergence to the true underlying value, even if the price starts at that true value (which it may not!) Let's assume that stocks are not a random walk and are some reflection of the underlying value of the company (however you define that). Even if there had been a glitch, on the first day, as soon as the real quotes start getting published and the information is symmetric all around, then the prices should start to approach the fundamental value, even if they don't converge. If a week later, Facebook is still trading below the IPO price, we can assume either that the convergence process takes time (unlikely, given the volume of stock being traded) or that the underlying value of Facebook as a company has changed in the last week (unlikely, since there has been relatively little news about Facebook-the-company, as opposed to Facebook-the-stock).
- nanex 14y ago
  Then why did BATS not reschedule their IPO again the next day? First impressions, regardless of how illogical they maybe, play a significant role in group behavior. "Even if their had been a glitch?" Really? 3x the open was postponed, followed by 17 seconds of no quotes/trades on ANY stock from Nasdaq, followed by a crossed quote from same exchange, followed by 3+ hours of no quote in FB from the listed exchange.
  - pgisacock 14y ago
    > Then why did BATS not reschedule their IPO again the next day? First impressions, regardless of how illogical they maybe, play a significant role in group behavior. Why reschedule? Who is supposed to benefit therefrom? Why are you trying to predetermine winners? It can't possibly matter for the long-term prospects of the stock, unless the sharp money runs out of bankroll.

schraeds 14y ago

http://en.wikipedia.org/wiki/Market_sentiment http://en.wikipedia.org/wiki/Market_sentiment

lowboy 14y ago

No, but they should have a stable exchange with which to go public. I'm not an economist, but to me it makes sense that factors such as confidence would greatly affect the price of a stock, not just in the short term. The price of a company's stock isn't just representative of its value - all the trading and expected trading of that stock plays a factor. You could argue that it isn't a good system because it places less value on the companies being traded and more on the effects of trading itself, but within the current system I think people have a right to complain about a poorly-executed IPO.

chimeracoder 14y ago
See my comment above. If you assume that the underlying value of Facebook hasn't changed in the last week (a reasonable assumption - remember, we're dealing with the underlying value of the company, not the value of the stock on any given day), then there would be no reason for a bump to occur on the first day of trading except that the stock was incorrectly priced. The reason that a 'bump' occurs is that money is being left at the table - ideally, stocks should exhibit no bump, because that means that the company has priced their stock correctly. Any bump means that traders are reaping the profit of the increase in the stock's value, and that profit is what the company was seeking to gain by going public.
- lowboy 14y ago
  Right, and I agree that the underlying value of FBComp hasn't changed. But that variability in the correctness of pricing of a stock is part of the game, is it not? As is the mis-estimation of a company's "true worth" by investors. If the problems with NASDAQ weren't present, and there was a first day bump as expected, I could see that instilling confidence in investors, driving demand for the stocks. Hence nanex's strongly worded quote about ripple effects. Do you disagree with that? Ultimately we'll never know what would have happened, but the negative ripple effects seem plausible.
- Drbble 14y ago
  There is an argument that the IPO buyers from the roadshow deserve a premium for buying in bulk at a predetermined price before they have the full information of the open market.

chimeracoder 14y ago

Exactly. Let's assume that Day 0 = day of IPO, and Day -1 = the day before the IPO. Let's assume that the (unobserved) value of the stock on Day -1 is the 'true' underlying value of the stock. The only way that a glitch on opening day would have a permanent affect on the stock price is if the stock price on Day n (for all n > 1) is conditionally independent of the price on Day -1 given the price on Day 0. In other words, the best predictor of tomorrow's price is today's price, and yesterday's price adds no new information. This is a reasonable assumption, but if you believe that, it means you also believe that stock prices are essentially a random walk, in which case there is never any convergence to the true underlying value, even if the price starts at that true value (which it may not!) Let's assume that stocks are not a random walk and are some reflection of the underlying value of the company (however you define that). Even if there had been a glitch, on the first day, as soon as the real quotes start getting published and the information is symmetric all around, then the prices should start to approach the fundamental value, even if they don't converge. If a week later, Facebook is still trading below the IPO price, we can assume either that the convergence process takes time (unlikely, given the volume of stock being traded) or that the underlying value of Facebook as a company has changed in the last week (unlikely, since there has been relatively little news about Facebook-the-company, as opposed to Facebook-the-stock).

nanex 14y ago
Then why did BATS not reschedule their IPO again the next day? First impressions, regardless of how illogical they maybe, play a significant role in group behavior. "Even if their had been a glitch?" Really? 3x the open was postponed, followed by 17 seconds of no quotes/trades on ANY stock from Nasdaq, followed by a crossed quote from same exchange, followed by 3+ hours of no quote in FB from the listed exchange.
- pgisacock 14y ago
  > Then why did BATS not reschedule their IPO again the next day? First impressions, regardless of how illogical they maybe, play a significant role in group behavior. Why reschedule? Who is supposed to benefit therefrom? Why are you trying to predetermine winners? It can't possibly matter for the long-term prospects of the stock, unless the sharp money runs out of bankroll.