The IPO and first seasoned equity sale: issue proceeds, owner/managers' wealth, and the underpricing signal

Article Abstract:

The effect of the practice of firms of trading underpriced IPOs is evaluated to assess the notion that high quality-firms actively choose to undervalue initial public offerings to distinguish themselves from low quality firms and to earn a better response from the public. Data from 172 industrial firms that made their IPOs from the period of 1987 to 1991 does not support the hypothesis that firms underprice securities to establish firm quality. Underpricing IPOs does not result in a more favorable market reaction and does not guarantee that firms can recover the costs from net proceeds.

Capital Management-Stock Sales, Management, Finance, Securities, Going public (Securities), Initial public offerings, Stock offerings

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Pricing of index options when interest rates are stochastic: an empirical test

Article Abstract:

Amin and Jarrow's (1992) extension of Merton's (1973) stochastic interest rate option-pricing model is tested empirically using data on European stock index options from Sweden's option market. The findings reveal that the Amin and Jarrow model performs better than the Black-Scholes pricing model. In addition, it is shown that the Amin and Jarrow formula avoids the time-to-maturity bias that is usually found when Black-Scholes is used to price stock index options.

Prices and rates, Interest rates, Stock index options

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