Bookbuilding, Price Revision and Initial Returns of IPOs

We study how public and private information revealed during bookbuilding is differentially reflected in price revisions, and how it affects IPO under-pricing. Using a unique handcollected database on Korean IPOs, we find that the revision process appears to reflect public information including market returns and institutional investors’ demand for IPOs more aggressively than private information, especially positive idiosyncratic shocks not explained by publicly available information. This asymmetric partial adjustment in price revisions helps explain the initial returns of IPOs. Our results regarding the asymmetric nature of the price adjustment are robust when controlling for other IPO characteristics. JEL code: G24, G32, G14