There Exists a Limiting Pareto Dominant Sequence for Listings of New Technologies in Stock Markets

Suppose arrival of a new technology in the real sector of an economy. Suppose firms that are sources of the new technology seek to list in stock markets. This study finds that, in the limit, presence of, at the very least, one high quality firm in the origin time listing cluster, and presence of a pair consisting of each of a low and high quality firm in the listing cluster which emerges immediately subsequent to the origin time cluster (the `follow-on time' cluster) independently are limiting necessary conditions for the minimization of valuation uncertainty risk. Denote listing sequences that satisfy the limiting necessary conditions, `optimal sequences', and let all listing firms act rationally. Not only does the optimal sequence facilitate minimization of valuation uncertainty risk, it also is the sequence that best optimizes valuations of all listing firms. Given the optimal sequence then strictly is preferred by each of investors and listing firms, it has parameterization as a Pareto dominant sequence. Study findings provide an economic rationale for the desirability of presence of relatively low quality IPOs in IPO clusters, yet condition the desirability of low quality IPOs on presence, in IPO clusters, of high quality IPOs. Importantly, signaling of private information is shown not to replicate valuation benefits of the optimal sequence