This would normally include not only valuation information generated by the investment banker, but also investor demand information obtained from information gathering activities such as book building. Nevertheless, whatever price is determined in the primary market for an initial public equity offer does not include the wider secondary market information that could be brought to bear on the pricing when trading begins.
That is why there is evidence across stock markets all over the world that when an initial public of er starts trading on the secondary market, the first day price, on average, is higher than the price at which the equity security was sold in the primary market.
This phenomenon is referred to as under-pricing. Therefore, until an initial public offer has been exposed to the rigors of pricing on the secondary market, such stocks are deemed to be unseasoned. The process of subjecting the price of the initial public of er to secondary market-wide influences— seasoning—begins on the first day of trading.
The length of the seasoning period could vary from company to company depending on the flow of information about the company and analysts following. However, any company that makes further issue of equity securities on the market at er an IPO would have considered its equity to be seasoned.
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| Unseasoned Equity Offering |
