Explore BrainMass

Explore BrainMass

    Under pricing in public offerings of common stock

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    In the UK, initial public offerings of common stock are usually sold by an offer for sale. Mr. Beam has observed that on average these stocks are under-priced by about 9% and for some years has followed a policy of applying for a constant proportion of each issue. He is therefore disappointed and puzzled to find that this policy has not resulted in a profit. Explain to him why this is so.

    © BrainMass Inc. brainmass.com March 4, 2021, 6:24 pm ad1c9bdddf

    Solution Preview

    The principle that has been illustrated is that of winner's curse. When individuals bid for a common-value object, the winner is likely to pay more than what the object is worth (winner's ...

    Solution Summary

    The solution discusses under pricing in public offerings of common stock.