The Demand for Stocks : An Analysis of IPO Auctions

This paper analyzes a unique data set of IPOs that were conducted as non-discriminatory (i.e., uniform price) auctions. Our data include the full demand schedules for auctioned IPOs conducted in Israel. To the best of our knowledge, this is the first time the whole demand schedule for any asset is described and analyzed. We show that all demand schedules are relatively flat around the auction clearing price: The average demand elasticity at the auction-clearing price is 37. We find that the elasticity of the demand is high when the return distribution of the issued security contains a large systematic component and is low when the return distribution contains a large unique component. We also find a significant average abnormal return of 4.5% on the first trading day and a positive correlation between the first-day abnormal return and the elasticity of demand. We offer an explanation for this phenomena based on the information revealed in the auction