We model an IPO company's optimal response to the presence of sentiment investors andshort sale constraints. Given regulatory constraints on price discrimination, the optimal mech-anism involves the issuer allocating stock to `regular' institutional investors for subsequentresale to sentiment...

Our model of the initial public offering process links the three main empirical IPO anomalies underpricing, hot issue markets, and long-run underperformance and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000 market for Internet IPOs) to the...

We analyze the impact of verifiability on how signals about agents are used to mitigate adverse selection. We show that if signals are verifiable the observed practice of collecting information about agents before contracting is inferior to writing contingent contracts. This holds regardless of...

Our model of the initial public offering process links the three main empirical IPO anomalies underpricing, hot issue markets, and long-run under performance and traces them to a common source of inefficiency. We relate hot IPO markets (such as the 1999/2000market for Internet IPOs) to the...