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 language | English |
|---|---|
| Peer-reviewed scientific journal | Journal of Financial Markets |
| Volume | 15 |
| Issue number | 2 |
| Pages (from-to) | 286-327 |
| Number of pages | 42 |
| ISSN | 1386-4181 |
| DOIs | |
| Publication status | Published - 01.05.2012 |
| MoE publication type | A1 Journal article - refereed |
Keywords
- 512 Business and Management
- Idiosyncratic risk
- Information uncertainty
- Initial public offerings
- Liquidity
- Market frictions
- Short-sale constraints