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The Distribution of IPO Holdings Across Institutional Mutual Funds

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Abstract

We examine initial public offering (IPO) holdings in the mutual funds of four large investment banks and five large non-investment banks during the period 1997 through 2002. Investment banks hold IPOs with different characteristics than IPOs held by non-investment banks, and they also tend to hold IPOs in different types of funds than non-investment banks. We classify holdings as to whether the IPO lies outside or inside the fund’s objective. Investment banks hold IPOs outside the fund objective in 27% of the fund/IPO pairs while non-investment banks hold outside their objective in just 5.4% of fund/IPO pairs. We see significant differences in IPO underpricing for both groups as well. For example, when non-investment banks hold IPOs outside a large capitalization fund objective, they select IPOs with 52% higher underpricing as measured by first-day returns.

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Correspondence to William C. Johnson.

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The Securities and Exchange Commission disclaims responsibility for any private publication or statement by any of its employees. This study expresses the authors’ views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.

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Johnson, W.C., Marietta-Westberg, J. The Distribution of IPO Holdings Across Institutional Mutual Funds. J Bus Ethics 90 (Suppl 2), 119–128 (2009). https://doi.org/10.1007/s10551-010-0379-3

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  • DOI: https://doi.org/10.1007/s10551-010-0379-3

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