A game-theoretic model of underpricing and over-subscription in Chinese IPO’s
Geertsema, Paul Lu, Helen
Geertsema, Paul
Lu, Helen
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Publication Type
Journal article with impact factor
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Supervisor
Publication Year
2016
Journal
Finance Research Letters
Book
Publication Volume
17
Publication Issue
May
Publication Begin page
93
Publication End page
96
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Abstract
In Chinese A-share IPO’s the bulk of available stock is allocated to investors via a lottery, with the payoff structure of participating in an IPO resembling a game. We solve a simple version of the game for the static Nash equilibrium in continuous strategies and derive the optimal IPO deposit for an arbitrary number of investors with common risk aversion within a two-moment decision model. A data set of 1121 Chinese A-share IPO’s provides empirical support for our results.
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Keywords
IPO Underpricing, Risk Aversion, Game Theory