Underpricing

(redirected from underpriced)
Also found in: Dictionary, Thesaurus.

Underpricing

Issuing securities at less than their market value.

Underpricing

Describing a situation in which a company prices an IPO lower than its market value. This results in the company raising less capital in the IPO than it could have raised. There is no definite way to determine if a stock issue is underpriced until it is too late and the price of the first secondary trade is much higher than the IPO.

underpricing

The pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale.
References in periodicals archive ?
First, the coefficient associated with the underpriced indicator variable (i.e., D) is significant at the 0.01 level for both time periods.
Focusing on the first day returns only, and again using Parkinson's estimation procedure, we were interested in whether underpriced issues tend to be more volatile than overpriced issues.
Because larger IPOs are generally less underpriced (Chalk and Peavy |4~), size differences alone may explain why Tinic's post-1933 IPOs have average higher initial returns than his pre-1933 sample.
(2007) find that underwriters favor regular investors more than infrequent investors in underpriced issues.
Thus, it can be concluded that IPO firm that uses the fund mainly for investment and/or expansion purposes will be judged to be high quality firm so it must be related to less risk and consequently less underpriced than its counterpart that uses the funds for supporting its operational expenses.
While the empirical evidence supports the view that asymmetric information models, including agency conflicts between the issuer and the investment banks, provides a primary explanation to the why new issues are underpriced, the enormous fluctuation in the level of underpricing over time raises doubt whether there may be other reasons that may explain the underpricing phenomenon.
The question of whether IPOs are underpriced has been an area of curiosity for academics and practitioners for some time.
Nick Allan, senior director in DTZ's UK investment department, said: "The Cardiff investment market has not seen the same level of trading of prime core industrial investments as elsewhere in the UK and this has left yields notionally higher than in other centres, which suggests it might be underpriced and therefore more attractive.
In other words, all IPOs must be underpriced in expectation.
"Why New Issues are Underpriced." Journal of Financial Economics 15: 187-212.
Cao and Shi (2006) explain the clustering of underpriced IPOs in their signaling theoretical model.
"Why New Issues Are Underpriced?", Journal of Financial Economics, Vol.