Primary market characteristics and secondary market frictions of stocks

Rodney Boehme, Gonul Colak

Research output: Contribution to journalArticleScientificpeer-review

11 Citations (Scopus)

Abstract

We analyze the primary market characteristics and the secondary market trading frictions of new stocks. IPOs issued in hot markets, with low offer price, low-reputation underwriters or no VC backing face higher liquidity frictions, higher information constraints, and worse short-sale constraints. Underpriced IPOs are more liquid and more recognizable, but they have higher idiosyncratic risk and higher short-sale constraints. Also, we find an interesting time trend in the evolution of the new stocks' trading frictions: the mean-reversion of an average IPO stock toward a typical seasoned stock takes more than a few years. We propose a quality-based explanation for these findings.
Original languageEnglish
Peer-reviewed scientific journalJournal of Financial Markets
Volume15
Issue number2
Pages (from-to)286-327
Number of pages42
ISSN1386-4181
DOIs
Publication statusPublished - 01.05.2012
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • Idiosyncratic risk
  • Information uncertainty
  • Initial public offerings
  • Liquidity
  • Market frictions
  • Short-sale constraints

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