Underpricing (SI4.2) Having heard about IPO underpricing, I put in an order to my broker for 1.000 shares of every IPO he can get for me. After three months, my investment record is as follows:
IPO, Shares Allocated to me, Price per Share, Return Initial
A, 500, $10, 7%
B 200, 20 , 12
C 1,000, 8 , -2X
D 0, 12, 23
a. What is the average underpricing in dollars of this sample of IPOs?
b. What is the average initial return on my “portfolio” of shares purchased from the four IPOs that I bid on? When calculating this average initial return, remember to weight by the amount of money invested in each issue.
c. “You have just encountered the problem of the winners’ curse.” True or false?
