Valuation Uncertainty and Short-Sales Constraints: Evidence from the IPO Aftermarket
Panos N. Patatoukas, Richard G. Sloan, Annika Yu Wang
Management Science · 2022 · Volume 68 · Issue 1
Abstract
We use the initial public offering (IPO) setting to provide evidence that the combination of valuation uncertainty and short-sales constraints generates significant equity market mispricing. The IPOs that we predict to be most susceptible to overpricing in the immediate aftermarket have first-day returns of +47% and lockup expiration returns of − − 9%. Our detailed analysis of securities lending market data confirms that these IPOs experience severe short-sales constraints that peak around the lockup expiration. Our paper both explains the anomalous pricing of IPOs and highlights the importance of valuation uncertainty and short-sales constraints in explaining equity mispricing. This paper was accepted by Brian Bushee, accounting.
Keywords
short-sales constraints, valuation uncertainty, IPO pricing, equity mispricing
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