An analysis of the pricing processes of Australian unit trust IPOs

This paper examines the pricing patterns of 36 Australian unit trust IPOs issued during the period 1984-1988. Unit trust IPOs, on average, are found to be underpriced but not to the same degree as IPOs of ordinary shares. The results appear to be sensitive to the year of offering and trust type. There is some evidence showing that the winner's curse problem may not be prevalent in the Australian IPO trust market. This may explain why trust IPOs are not subject to the same systematic and significant underpricing as IPOs of ordinary shares, a widely documented phenomenon in the literature. Consistent with previous studies, we also find the standard deviation of the aftermarket returns, a proxy for ex ante uncertainty, has a significant impact on the pricing of unit trust IPOs.