VALUATION UNCERTAINTY, INSTITUTIONAL INVOLVEMENT, AND THE UNDERPRICING OF IPOS - THE CASE OF REITS

Unlike operating company IPOs, Real Estate Investment Trust (REIT) IPO s in the 1970s and 1980s were initially overpriced and subsequently un derperformed other REIT securities in the 100 trading days after initi al issuance. In contrast, equity REIT IPOs in the 1990s have been unde rpriced, on average by 3.6%, and have moderately outperformed seasoned equity REITs in the 100 trading days after issuance. We attribute the initial-day underpricing of recent REIT IPOs to greater valuation unc ertainty and greater institutional involvement in the recent REIT IPO market. Both of these factors make these issues more susceptible to th e 'winner's curse'.