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Sequential Sales, Learning, and Cascades
Abstract
When IPO shares are sold sequentially, later potential investors can learn from the purchasing decisions of earlier investors. This can lead rapidly to “cascades” in which subsequent investors optimally ignore their private information and imitate earlier investors. Although rationing in this situation gives rise to a winner's curse, it is irrelevant. The model predicts that: (1) Offerings succeed or fail rapidly. (2) Demand can be so elastic that even risk‐neutral issuers underprice to completely avoid failure. (3) Issuers with good inside information can price their shares so high that they sometimes fail. (4) An underwriter may want to reduce the communication among investors by spreading the selling effort over a more segmented market.
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Citations
Cited by
Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1998) · Journal of Economic Perspectives · doi:10.1257/jep.12.3.151 · Cited by 1,915
Self-citationPreferences for Stock Characteristics As Revealed by Mutual Fund Portfolio Holdings
FALKENSTEIN, E. G. (1996) · The Journal of Finance · doi:10.1111/j.1540-6261.1996.tb05204.x · Cited by 1,058
Insider Ownership and the Decision to Go Public
Zingales, L. (1995) · The Review of Economic Studies · doi:10.2307/2298036 · Cited by 873
Initial Public Offerings: An Analysis of Theory and Practice
BRAU, J. C., & FAWCETT, S. E. (2006) · The Journal of Finance · doi:10.1111/j.1540-6261.2006.00840.x · Cited by 837
Bayesian Learning in Social Networks
Acemoglu, D., Dahleh, M. A., Lobel, I., & Ozdaglar, A. (2011) · The Review of Economic Studies · doi:10.1093/restud/rdr004 · Cited by 754
Metadata
- Authors
- WELCH, I.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1992-06
- Volume
- 47
- Issue
- 2
- Pages
- 695-732
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2148876341
- Cited by
- 1,298
- References
- 0
- FWCI
- 18.52
- Type
- journal article
- Language
- en
- Open access
- closed
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Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
