George does not have any investment experience. Currently, he is interested in investing in Alibaba but...
George does not have any investment experience. Currently, he is interested in investing in Alibaba but he does not sure either in its initial public offering (i.e. primary market) or secondary market. Discuss which would offer greater risk to him.
Homework Answers
Initial public offering as the name indicates is the first time a company approaches the capital markets for funds. As the company is making its foray,the information asymmetry is high and the investors are unsure about the right price to be paid for the firm. This creates a higher risk as compared to a secondary market. In a secondary market, the prices are well determined on the basis of information about the firm and demand and supply of shares. Thus, the risks inherent in a secondary market is comparatively lower than the primary market or during an IPO.
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