Auctions versus book-built IPOs in Japan: A comparison of aftermarket volatility

In a recent theoretical paper, Sherman [Sherman, A.E., 2005, Global trends in IPO methods: Book building versus auctions with endogenous entry, Journal of Financial Economics 78, 615–649.] proposes that: “If book building leads to greater expected underpricing relative to uniform price or discriminatory auctions, then it should also lead to less volatility in aftermarket trading…”. In this paper, we study a Japanese sample and find that book-built IPOs exhibit greater underpricing and higher aftermarket volatility compared to price-discriminatory auctions. Aftermarket volatility wanes with seasoning in both sub-samples, but the book-built volatility levels are persistently higher than those for auctions for as long as one year after the IPO issue date.