This paper reassesses the apparent systematic underpricing of initial public offerings (IPOs). Investigation of the distribution of initial returns following IPOs shows that positive mean initial returns may reflect the existence of a partially unobserved left (negative) tail. Moreover, most IPOs with zero one-day returns subsequently fall in price, suggesting that underwriter price support may account for the skewed distribution and hence the phenomenon of positive average initial IPO returns, even if offering prices are set at expected market value. This paper thus challenges the presumption underlying previous research that positive average initial IPO returns result primarily from deliberate underpricing.

This paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty. The first is technical uncertainty, i.e., uncertainty over the physical difficulty of completing a project, which is only resolved as the investment proceeds. The second is input cost uncertainty, i.e., uncertainty over the prices of construction inputs or over government regulations affecting construction costs, which is external to the firm. These two types of uncertainty have very different effects on the investment decision. A simple investment rule is derived that maximizes firm value, and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s.

This paper investigates whether portfolio return autocorrelation can be explained by time-varying expected returns, nontrading, state limit orders, market maker inventory policy, or transaction costs. Evidence is consistent with the hypothesis that transaction costs cause portfolio autocorrelation by slowing price adjustment. I develop a transaction-cost model which predicts that prices adjust faster when changes in valuation are large in relation to the bid-ask spread. Cross-sectional tests support this prediction, but time-series tests do not.