The winner's curse theory assumes that the informed investor receives more of the underpriced IPOs.

Question

Quizplus · Accepted Answer

The winner's curse theory suggests that the investor who wins the bidding process for an IPO may end up overpaying, as they may have been competing against other informed investors who accurately valued the company. Therefore, it is possible that the informed investor may receive more of the underpriced IPOs, but they also run the risk of overpaying and experiencing a negative return.

The Winner's Curse Theory Assumes That the Informed Investor Receives