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excessive trading commissions paid on unrelated transactions) from investors competing for allocations of underpriced stock.
In an examination of initial underpricing during the 2000-2005 period, Sohail and Nasr (2007) found that on average, IPOs are underpriced by 35.
For example, IPOs with greater sale ratios may be underpriced more to attract larger demand.
Nick Allan, senior director in DTZ's UK investment department, said: "The Cardiff investment market has not seen the same level of trading of prime core industrial investments as elsewhere in the UK and this has left yields notionally higher than in other centres, which suggests it might be underpriced and therefore more attractive.
In other words, all IPOs must be underpriced in expectation.
Cao and Shi (2006) explain the clustering of underpriced IPOs in their signaling theoretical model.
These results are also similar to those of Loderer, Sheehan, and Kadlec (1991) who find SEOs listed in NASDAQ more severely underpriced than those listed in NYSE and AMEX.
IPOs were less severely underpriced as the market matured due to better information flow, more experienced investors, and the establishment of market mechanisms.
The fact that investors who participated in privatization IPOs buying stock at day one closing prices obtained a CAMAR of approximately 20% during that period suggests that initial offer prices were probably underpriced.
Therefore, we hypothesize that firms from countries with higher levels of investor protection will be less underpriced than those from countries with lower levels of investor protection (i.
Issues are believed to be deliberately underpriced, in order to compensate the risk of trading caused by informational disadvantage to the uninformed investors due to the existence of information asymmetry between groups of informed and uninformed investors.