THE UNDERPRICING OF INITIAL PUBLIC OFFERINGS AND THE PARTIAL ADJUSTMENT PHENOMENON

This paper documents that the relation of the final offer price to the range of anticipated offer prices disclosed in the preliminary prospe ctus is a good predictor of initial returns. Issues that have final of fer prices which exceed the limits of the offer range have greater und erpricing than all other initial public offerings, and are also more l ikely to increase the number of shares issued. These results are consi stent with the pricing and allocation schedule proposed by Benveniste and Spindt (1989), in which shares in an offering are rationed and pri ces only partially adjust to new information.