ABSTRACT
This chapter outlines a methodology for assessing the relative efficiency of different new issue markets by comparing the relationship between the uncertainty of the investment bank in valuing the issue and the average amount of under pricing. It presents estimates of the uncertainty- under pricing trade-off for the Offer for Sale and Placement new issue markets in the UK and for the initial public offering new issue market in the US. On the basis of these estimates it is possible to rank the relative efficiency of these markets and test the proposition that the method of distribution is an important determinant of new issue market efficiency. The test of the importance of distribution in determining efficiency exploits institutional and regulatory differences between new issue markets. The principal difference between the Placement and the Offer for Sale is that the investment bank is free to determine the method of allotment for the issue.
