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:
- 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.
- 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.
- The transaction costs of the IPO are very high, and it is unclear why firms willingly incur such high costs.
- 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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