Question

briefly explain four IPO "puzzles"?

Answer 1

Four IPO "puzzles"-

1. Initial public offerings (IPOs) are mostly under priced- It is the the short-run under pricing phenomenon. This is is one of the puzzles on IPOs when price run up of the IPO on the first day trading

2. Highly cyclical Initial public offerings (IPOs)- Sometimes fall in capital markets leads to decline in the number of IPOs and sometimes there is increase in the number of IPOs. They are considered as Hot IPO markets and Cold IPO markets. It is the hot issue that sells at a premium over the public offering price on the first day of trading that results the initial trading price to rise above the price of IPO.

3. High transaction costs of IPO-Uncertainty of the firms behavior about why the firms willingly incur high transaction costs.

4. The poor long-run performance of a newly public company.