We explore the role of capacity constraints in establishing efficient pricing in multi-unit common value auctions in a setting relevant to auction-based equity IPOs. The method of inquiry is experimental economics. We find that sufficiently large capacity constraints mitigate the overbidding...

We use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option. We find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated. The time series...

In most models of market microstructure tractability requires that all market participants know the number (and presence) of competing insiders. I drop this assumption in experimental asset markets. Outcomes are qualitatively consistent with theoretical models when the number of insiders is...

Using a unique dataset of complete bid information for every IPO auction in Taiwan during 1995--2000, we examine the behaviors and returns of two groups--institutional and retail investors--in a setting in which underwriters do not have pricing or allocation discretion. We find that the bids of...

Shelf registration gives underwriters greater flexibility in timing market issues and involves little or no increase in direct costs, since registration fees are exactly the same and underwriter fees seem comparable. Nevertheless, shelf equity issues are rare. I argue that erosion in the due...

We model the firm's decision to invest in liquid assets when external financing is costly. The optimal amount of liquidity is determined by a tradeoff between the low return earned on liquid assets and the benefit of minimizing the need for costly external financing. The model predicts that the...

The controversy over IPOs has raised questions about whether retail investors are being unfairly denied access to shares in IPOs and whether the new Internet auction methods might provide a fairer and more efficient way to allocate shares. This article argues that much of the popular concern may...

We examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during...