Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

15:21 Search BAFI 361 Fall 202... a Part II- Empirical Examinatie of depicigi This game will camine e important de comme aspect of tablic offering

image text in transcribed
image text in transcribed
image text in transcribed
15:21 Search BAFI 361 Fall 202... a Part II- Empirical Examinatie of depicigi This game will camine e important de comme aspect of tablic offering for simply the of An 1 refion to the moment a company gees public. This marked by me public equity, the IPO is also the fest moment the company seck market. Mere often than when com espuble the feeling day carries positive and largerctum. More specifically, we can see the stock its very fest day of trading, as Take the example of Cupede. When the company went publica 2006. heller price was 522, but the main price closed 54 the end of the field of ding. Thes, for This is not an uncommon outcome ha fact, Roy Riner found the companies that went public between 1975 and 2005 in US. the we comme seems to be leaving my at the table when the price rischia the feedy it could be charging more for the shes being offered. But, they have been charging mere for the shares, we say the was under Underpricing some pervasive that it is considered as she does happen. The much publiced IPO for Facebook is megle. The offer price for Pacebook was dod 51833 the end of the way wil underking hot just under 1. The way there was to high. If we look at the close price, would Our task in the assignment is to understand a priblemes and takes place Before we wish europe, the wood to do the price of IPO is De crucial de precis how to become for the stocking offered. Since the pre-1.com price here. The office is listed the company as viss on the IPO process. These underwriter. What do we do is that they first the value establishing a range for the offering price of the firm the Chiesange was initially set between SIS 50 and 517.50 per share. Then the unders on a road how they meet with my poetie minder the possible offering prices ally, the days preceding of the trading the One possible explanation came to be known as the most Benvenise and Spind (1989) oticed that during the mode information about the demand for upcoming dead higher offer price is now that mig pood news about the IPO will resultingher offer they will deline of doing unless they are offered something in com. Underpricing beach w In other word, underpricing is used as a way to cutie investore the main about The partial to an anna bypothana is the police the fice the IPC that gathered positive information from its during the madhow. This Is the hypothesis we will tell here. We canapeway for there marked to the collection of positive ows the adjustment in the price from the range of pre Dashboard Calendar To Do Notifications Inbox 15:21 Search EXPECTED PRICE where EXPECTED PRICE (HIGH+LOW)2 Generate univariate statistics (number of observations, mean value, median value, minimum value and maximum value) on these measures. You should generate and how the following output: N DAYIRET 0.000 0.00 000 0.00 DAYIRET_AD DELTA OFFER 0.000 0.00 0.00 0.00 Figure 1. Summary statistics Do the results in Figure I suggest the existence of underpricing? Now, formally test whether Ist day abnormal returns (DAYIRET_ADJ) are significantly different from zero. Let us examine the information revelation story. First, generate and show in your report a plot of Ist day returns (DAYIRET_ADJ) against changes in offer price (DELTA_OFFER. our measure of price adjustment). Does the plot suggest a linear relationship between these Page 1 BAF1361 Fall 2020 Assirent variables? (That is, can you think of fitting a line that represents this relationship in a reasonable way!) Check whether DELTA_OFFER matters for the underpricing, by running the regression model DAYIRET_ADJ-Boti DELTA_OFFER+c You should fill in and show in your report an output as in Figure 2. For each coefficient please report the estimate the t-stat and the p-value. As an alternative, you can report the standard error in place of the stat (since one uniquely determines the other). Please also show the number of observations used in the regression and its R. (A third worksheet in "34_data.xlsx"contains a table such as the one shown in Figure 2.) DATA OPPER CORO pevalec 0.000 0.00000 Figure 2. Regression results First examine i. Test the hypothesis that there is no effect of change in offer price on Ist day returns, He - 0 HiBio Then interpret the B: that is, how to properly quantify the effect of change in offer price on 1" day returns? (That is, if offer price changes by some amount, what is the corresponding change in the left-hand side variable?) Then look at 8. What is it capturing? Give an interpretation of the magnitude of the intercept and whether this interpretation is relevant (that is, whether the coefficient is "significant" with respect to your null hypothesis). Finally, what is the explanatory power of this model? 15:21 Search BAFI 361 Fall 202... a Part II- Empirical Examinatie of depicigi This game will camine e important de comme aspect of tablic offering for simply the of An 1 refion to the moment a company gees public. This marked by me public equity, the IPO is also the fest moment the company seck market. Mere often than when com espuble the feeling day carries positive and largerctum. More specifically, we can see the stock its very fest day of trading, as Take the example of Cupede. When the company went publica 2006. heller price was 522, but the main price closed 54 the end of the field of ding. Thes, for This is not an uncommon outcome ha fact, Roy Riner found the companies that went public between 1975 and 2005 in US. the we comme seems to be leaving my at the table when the price rischia the feedy it could be charging more for the shes being offered. But, they have been charging mere for the shares, we say the was under Underpricing some pervasive that it is considered as she does happen. The much publiced IPO for Facebook is megle. The offer price for Pacebook was dod 51833 the end of the way wil underking hot just under 1. The way there was to high. If we look at the close price, would Our task in the assignment is to understand a priblemes and takes place Before we wish europe, the wood to do the price of IPO is De crucial de precis how to become for the stocking offered. Since the pre-1.com price here. The office is listed the company as viss on the IPO process. These underwriter. What do we do is that they first the value establishing a range for the offering price of the firm the Chiesange was initially set between SIS 50 and 517.50 per share. Then the unders on a road how they meet with my poetie minder the possible offering prices ally, the days preceding of the trading the One possible explanation came to be known as the most Benvenise and Spind (1989) oticed that during the mode information about the demand for upcoming dead higher offer price is now that mig pood news about the IPO will resultingher offer they will deline of doing unless they are offered something in com. Underpricing beach w In other word, underpricing is used as a way to cutie investore the main about The partial to an anna bypothana is the police the fice the IPC that gathered positive information from its during the madhow. This Is the hypothesis we will tell here. We canapeway for there marked to the collection of positive ows the adjustment in the price from the range of pre Dashboard Calendar To Do Notifications Inbox 15:21 Search EXPECTED PRICE where EXPECTED PRICE (HIGH+LOW)2 Generate univariate statistics (number of observations, mean value, median value, minimum value and maximum value) on these measures. You should generate and how the following output: N DAYIRET 0.000 0.00 000 0.00 DAYIRET_AD DELTA OFFER 0.000 0.00 0.00 0.00 Figure 1. Summary statistics Do the results in Figure I suggest the existence of underpricing? Now, formally test whether Ist day abnormal returns (DAYIRET_ADJ) are significantly different from zero. Let us examine the information revelation story. First, generate and show in your report a plot of Ist day returns (DAYIRET_ADJ) against changes in offer price (DELTA_OFFER. our measure of price adjustment). Does the plot suggest a linear relationship between these Page 1 BAF1361 Fall 2020 Assirent variables? (That is, can you think of fitting a line that represents this relationship in a reasonable way!) Check whether DELTA_OFFER matters for the underpricing, by running the regression model DAYIRET_ADJ-Boti DELTA_OFFER+c You should fill in and show in your report an output as in Figure 2. For each coefficient please report the estimate the t-stat and the p-value. As an alternative, you can report the standard error in place of the stat (since one uniquely determines the other). Please also show the number of observations used in the regression and its R. (A third worksheet in "34_data.xlsx"contains a table such as the one shown in Figure 2.) DATA OPPER CORO pevalec 0.000 0.00000 Figure 2. Regression results First examine i. Test the hypothesis that there is no effect of change in offer price on Ist day returns, He - 0 HiBio Then interpret the B: that is, how to properly quantify the effect of change in offer price on 1" day returns? (That is, if offer price changes by some amount, what is the corresponding change in the left-hand side variable?) Then look at 8. What is it capturing? Give an interpretation of the magnitude of the intercept and whether this interpretation is relevant (that is, whether the coefficient is "significant" with respect to your null hypothesis). Finally, what is the explanatory power of this model

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes

7th Edition

0072866578, 9780072866575

More Books

Students also viewed these Finance questions