DP2863 Bookbuilding: How Informative is the Order Book?
When using a formal bookbuilding procedure, underwriters observe
the demand curves of investors as stated in the ?book? prior to
pricing shares in an equity issue. The purpose of this Paper is to
examine whether the investment bank uses the information in the
book when setting the issue price, and whether this information can
help predict subsequent secondary aftermarket prices. We examine
the details of the institutional bids for shares for a sample of
63 international equity issues. We find that the issue price is
closely related to the limit prices submitted by bidders. The
level of oversubscription has a smaller but significant effect.
The price primarily reflects the information in the price
contingent bids of certain bidder types, such as large bidders and
frequent bidders. Aftermarket returns in IPOs are positively
correlated with oversubscription and elasticity of the demand.
