IPO Underpricing over the Very Long Run




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    • David Chambers was at the Department of Economics, Oxford University. He is now at Judge Business School, Cambridge University. Elroy Dimson is at London Business School. We are grateful for helpful suggestions from Sirio Aramonte, Dick Brealey, Ann Carlos, Nick Crafts, Abe de Jong, Julian Franks, Will Goetzmann, David Goldreich, Tim Jenkinson, Oguzhan Karakas, Mario Levis, Alexander Ljungqvist, Larry Neal, Tom Nicholas, Mahendrarajah Nimalendran, Stefano Paleari, Herbert Rijken, Jay Ritter, Pedro Saffi, Kevin Sheppard, Ann Sherman, Robert Stambaugh (the editor for this paper), Neal Stoughton, Eli Talmor, Silvio Vismara, Josef Zechner; seminar participants at Cambridge University, London Business School, London School of Economics, Norwegian School of Management, Oxford University, Sciences Po, University of Venice, University of Vienna, and Warwick University; participants at meetings of the Western Finance Association (Colorado), Financial Management Association (Stockholm), International Economic History Association (Helsinki), and International Conference on Long-Term Perspectives (Antwerp); and, especially, the Journal's anonymous referee. The previous title of this paper was “Better Regulation and Underwriter Reputation Have Done Nothing for IPO Underpricing Over the 20th Century: Empirical Evidence from IPOs on the London Stock Exchange.” Financial support was provided by the Coller Institute of Private Equity at London Business School.


A central measure of the efficiency of the Initial Public Offering (IPO) market is the extent to which issues are underpriced. We present new and comprehensive evidence covering British IPOs since World War I. During the period from 1917 to 1945, public offers were underpriced by an average of only 3.80%, as compared to 9.15% in the period from 1946 to 1986, and even more after the U.K. stock market was deregulated in 1986. The post-WWII rise in underpricing cannot be attributed to changes in firm composition, and occurred in spite of improvements in regulation, disclosure, and the prestige of IPO underwriters.