The number of shares that the underwriter in an initial public offer (IPO) decides to offer to the public in the primary market. In general, the underwriter assigns shares to potential bidders on the basis of historical trading volume. A rational allocation strategy is one that doesn’t entertain 100% of bidders’ needs of shares, so as to encourage them to resort, for the shortage, to the secondary market (aftermarket).
Allocation can be conducted through different methods including bookbuilding, fixed-price issue, and Dutch auction.
