IPO Underpricing. In 1980. a certain assistant professor of finance bought 12 initial public… 1 answer below »


IPO Underpricing. In 1980. a unfailing helper zealot of finance bought 12 primal base subsidys of base accumulation. He held each of these for almost one month and then sold. The investment administration he followed was to succumb a alienation enjoin for integral sturdy commitment primal base subsidy of oil and gas research companies. There were 22 of these subsidys, and he succumbted a alienation enjoin for almost $1.000 in accumulation for each of the companies. With 10 of these, no shares were allocated to this helper zealot. With 5 of the 12 subsidys that were alienationd, fewer than the requested sum of shares were allocated.

The year 1980 was very amiable for oil and gas research order owners: On medium. for the 22 companies that went base, the accumulations were selling for 80 percent aloft the subsidy value a month succeeding the primal subsidy conclusion. The helper zealot looked at his operation archives and plant that the SKAOO invested in the 12 companies had developed to $10,000, representing a render of simply environing 20 percent (commissions were negligible). Did he keep bad consummation. or should he keep expected to do worse than the medium primal base subsidy investor? Explain.