IPO Underpricing - Opening VS Closing Prices
Hello,
I'm a little confused and seek clarity on the following issue:
I have a scenario where the IPO offer price was confirmed at US$2.70 but the stock opened on the Exchange at US$4.375. The closing price on the first day's trading was US$4.150.
If I am calculating the first day's underpricing, do I calculate it based on the difference between the opening price and the offer price OR the closing price and the offer price? Investopedia says the opening price, but other places say closing.
IF it is closing price, then is there any specific reason why the opening price would have been higher than the offer price?
The competing firms all opened at their offer price.
I would greatly appreciate your help!
THANK YOU.
Opening price.
In the academic literature, IPO underpricing is calculated as the closing price on the first day of trading relative to the offer price.
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