Initial Public Offerings in the United Kingdom, the United States, and Japan

When a firm makes an initial public offering (IPO) of it equity, the accuracy with which its shares are priced will be an important factor determining the cost of "going public." In the United States, the United Kingdom, and Japan IPOs are systematically priced at a discount relative to their subsequent trading price. In the United States and the United Kingdom such discounts are, in average, around 10 percent and 7 percent, respectively, in normal trading conditions. In contrast, the average Japanese IPO rose in price by nearly 55 percent after one week. Existing theories seem unable to explain this persistent underpricing of IPOs across countries.