IPO underpricing explanations: Implications from investor application and allocation schedules

Initial Public Offers (IPOs) made on the Stock Exchange of Singapore routinely provide sufficiently detailed data to allow reconstruction of both the application and allocation schedules. We show that large investors tend to preferentially request participation in IPOs with higher initial returns, consistent with these investors being better informed. We also show that inferences based exclusively on application strategies are quite different from those drawn on investor allocations. Our results suggest that caution is necessary in assessing the relative merit of competing explanations for IPO underpricing where the underlying demand is not identified.