Some economists believe that investment banks ________ IPOs; the evidence they p

Question

Some economists believe that investment banks ________ IPOs; the evidence they point to is that the stock price ________ in the secondary markets. A. underprice; often jumps to a higher price B. overprice; often falls to a lower price C. correctly price; remains the same D. overprice; often jumps to a higher price Some economists believe that investment banks ________ IPOs; the evidence they point to is that the stock price ________ in the secondary markets. A. underprice; often jumps to a higher price B. overprice; often falls to a lower price C. correctly price; remains the same D. overprice; often jumps to a higher price

Explanation / Answer

The answer is A. The reason is issuers are uncertain about how liquid the stock will be upon listing causing them to give a discount to the investors for uncertainty regarding liquidity risk.

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