Faculty Publications

Aftermarket Support And Underpricing Of Initial Public Offerings

Document Type

Article

Keywords

IPO, Stabilization, Underwriting

Journal/Book/Conference Title

Journal of Financial Economics

Volume

35

Issue

2

First Page

199

Last Page

219

Abstract

We study the aftermarket for 72 initial public offerings (IPOs) using comprehensive trade and quote-change data from every market maker for the first three days of trading. Underwriters quote higher bid prices than other market makers for issues that commence trading at or below the offer price. Underwriters repurchase large quantities of stock in the aftermarket without risk by overselling the issue by the amount of the overallotment option. If the IPO is hot, the overallotment option is exercised. If not, the short position is covered with aftermarket selling. We discuss several reasons for underwriter support. © 1994.

Department

Department of Finance

Original Publication Date

1-1-1994

DOI of published version

10.1016/0304-405X(94)90004-3

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