IPO PUZZLES

Part 1: Please respond to the following:

Describe the four characteristics of IPO puzzles, in your own words, and why a financial manager is concerned about them. Find an example of one of these puzzles using a business news website, such as Bloomberg, CNBC, or Marketplace, among others. Briefly describe the example and how it fits with one of the puzzles.

*** Double-Space is not necessary

*** 150 + Words ***

Part 2: Respond to classmate’s discussion below:

“An initial public offering (IPO) is the process of offering shares of a private corporation to the public in an issuance of new stock. Allowing a company to raise capital from public investors. Four characteristics of IPOs puzzle financial economists:

  1. On average, IPOs may appear to be underpriced: The price at the end of trading on the first day is often substantially higher than the IPO price.
  2. The number of IPOs is highly cyclical. When times are good, the market is flooded with IPOs; when times are bad, the number of IPOs dries up.
  3. The transaction costs of the IPO are very high, and it is unclear why firms willingly incur such high costs.
  4. The long-run performance of a newly public company (three to five years from the date of issue) is poor. That is, on average, a three- to five-year buy-and-hold strategy appears to be a bad investment.

According to Yahoo! Fiancne, Facebook went public in May of 2012 with their IPO price of $38 a share. At the time it was the biggest IPO in technology at that time, and if you’d bought $1,000 in Facebook shares it would have been worth $4,800 (as of the publish date in the article of 2018). ”

*** Double-Space is not necessary ***

*** 50 + Words ***

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