Fig. 3
From: Heterogeneous expectations, IPO Underpricing and issuing mechanism
Risk aversion coefficient’s influence on IPO underpricing under two pricing mechanisms. We use the partial data of Fig. 1: n = 10, k = 0.65 ρ = 2, σ 1 2 = 1, σ 2 2 = 2.5, Ē(U) = 12.6, and assume investor estimates of offering value under bookbuilding as V 2 = 16.5, V 1 = 11.46 and investors’ estimates of offering value under fixed price as V 2 = 14.5, V 1 = 11.46; thus, investor heterogeneous expectations under bookbuilding are larger (16.5-11.46=5.01) than those under fixed price (14.5-11.46=3.01). We then use Matlab to plot and discuss the relation between IPO underpricing and ρ and σ 1 2 under the model (3) and model (6). UP1 is IPO underpricing under the fixed-price mechanism and UP2 is IPO underpricing under bookbuilding