IPO Pricing, Block Sales, and Long-Term Performance


  • We are indebted to Richard Roll and Todd Houge for their thoughtful and detailed comments. We also thank Philippe Jorion, Jaemin Kim, Eli Talmor, Fan Yu, Swaminathan Badrinath, and workshop participants at the University of California, Irvine, San Diego State University, Massey University, the University of Alaska Fairbanks, Concordia University, the Midwest Finance Association meeting in St. Louis, the European Financial Management Association meeting in Basel, Switzerland, and the Financial Management Association meeting in New Orleans.

* Corresponding author: College of Business Administration, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182-8236; Phone: 1-619-594-5690; Fax: 1-619-594-3272; E-mail: kpukthua@mail.sdsu.edu


Block sales following IPOs are related to the IPOs' value relative to an estimate of intrinsic value, opening-trade return, and IPO size. Overvalued IPOs experience more block sales than undervalued IPOs. IPOs with high block sales outperform IPOs with low block sales from 20 days after IPO through lockup expiration; however, IPOs with high block sales underperform IPOs with low block sales from lockup expiration through the third year after the IPO. The results indicate that block traders are advantaged relative to other traders; whether the advantage is based on superior information or superior valuation capabilities is unknown.