Bookbuilding: How Informative is the Order Book

46 Pages Posted: 3 May 2001

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

David Goldreich

University of Toronto - Rotman School of Management

Date Written: April 2001


When using a formal bookbuilding procedure, underwriters observe the demand curves of investors as stated in the "book" prior to pricing shares in an equity issue. The purpose of this paper is to examine whether the investment bank uses the information in the book when setting the issue price and whether this information can help predict subsequent secondary aftermarket prices. We examine the details of the institutional bids for shares for a sample of 63 international equity issues. We find that the issue price is closely related to the limit prices submitted by bidders. The level of oversubscription has a smaller but significant effect. The price primarily reflects the information in the price contingent bids of certain bidders such as large bidders and frequent bidders. Aftermarket returns in IPOs are positively correlated with oversubscription and elasticity of the demand.

Suggested Citation

Cornelli, Francesca and Goldreich, David, Bookbuilding: How Informative is the Order Book (April 2001). Available at SSRN: or

Francesca Cornelli

London Business School ( email )

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Centre for Economic Policy Research (CEPR)

United Kingdom

David Goldreich (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
416-946-0833 (Phone)

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