Which of the following have been offered as explanations of IPO underpricing? I.Underpricing helps offset the "winner's curse."
II)Underpricing helps ensure investors will be long-term holders of the IPO securities.
III)Underpricing helps ensure investment bank customers will earn a profit on average.
IV)Underpricing is needed to convince investors to accept the risks associated with IPOs.

Question

Quizplus · Accepted Answer

I. The winner's curse refers to the tendency for the winning bidder in an auction or competitive process to overpay for an asset. Underpricing can help offset this by reducing the likelihood of overpaying and potentially losing money on the investment. 
III. Investment banks want to ensure their customers earn a profit on the IPO to incentivize them to continue working with the bank for future offerings. Underpricing can help achieve this goal. 
IV. IPOs are generally seen as risky investments, and underpricing may help attract investors who might otherwise be hesitant to invest.

Which of the Following Have Been Offered as Explanations of IPO