Underpricing

Dictionary Says

Definition of 'Underpricing'

The pricing of an initial public offering (IPO) below its market value. When the offer price is lower than the price of the first trade, the stock is considered to be underpriced. A stock is usually only underpriced temporarily because the laws of supply and demand will eventually drive it toward its intrinsic value.
Investopedia Says

Investopedia explains 'Underpricing'

It is believed that IPOs are often underpriced because of concerns relating to liquidity and uncertainty about the level at which the stock will trade. The less liquid and less predictable the shares are, the more underpriced they will have to be in order to compensate investors for the risk they are taking. Because an IPO's issuer tends to know more about the value of the shares than the investor, a company must underprice its stock to encourage investors to participate in the IPO.

Articles Of Interest

  1. What's the difference between publicly- and privately-held companies?

    Privately-held companies are - no surprise here - privately held. This means that, in most cases, the company is owned by the company's founders, management or a group of private investors. A ...
  2. What does 'going public' mean?

    Going public refers to a private company's initial public offering (IPO), thus becoming a publicly traded and owned entity. Businesses usually go public to raise capital in hopes of expanding; ...
  3. What are the components of the risk premium for investments?

    The risk premium is the excess return above the risk-free rate that investors require as compensation for the higher uncertainty associated with risky assets. The five main risks that comprise ...
  4. How does an IPO get valued? What are some good methods for analyzing IPOs?

    The price of a financial asset traded on the market is set by the forces of supply and demand. Newly issued stocks are no exception to this rule - they sell for whatever price a person is willing ...
  5. IPO Basics Tutorial

    What's an IPO, and how did everybody get so rich off them during the dotcom boom? We give you the scoop.
  6. Coty Readies IPO

    Fragrance maker Coty filed a registration statement amendment May 28 that sees it raising as much as $1.2 billion from its IPO. Coty tried to buy Avon for $10.7 billion in 2012 but was unsuccessful. ...
  7. Ski-Doo IPO Raises $254 Million: Should You Buy?

    Read on and I'll look into if you should buy Ski-Doo's stock once it becomes available.
  8. Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  9. Marketo Jumps 67% in IPO Debut-Time To Sell?

    Software startup Marketo went public May 17. Its stock closed up 64% in its first day of trading. Time to sell your shares and move on? I'll have a look...
  10. Claire's: Should You Accessorize With Its IPO?

    Apollo Global Management is taking accessories retailer Claire's public. Should you get in on this IPO? I'll take a look.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Zomma

    An options greek used to measure the change in gamma in relation to changes in the volatility of the underlying asset.
  2. Yield Elbow

    The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.
  3. Xenocurrency

    A currency that trades in markets outside of its domestic borders.
  4. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.
  5. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.
  6. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=df6a174976a52252ad58462d8f65df6a