The Development of Secondary Market Liquidity for NYSE-Listed IPOs

For NYSE-listed IPOs, limit order submissions and depth relative to volume are unusually low on the first trading day. Initial buy-side liquidity is higher for IPOs with high-quality underwriters, large syndicates, low insider sales, and high premarket demand, while sell-side liquidity is higher for...

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Bibliographic Details
Published in:The Journal of finance (New York) 2004-10, Vol.59 (5), p.2339-2374
Main Authors: CORWIN, SHANE A., HARRIS, JEFFREY H., LIPSON, MARC L.
Format: Article
Language:English
Subjects:
Business orders
Finance
Initial public offering
Initial public offerings
Limit orders
Liquidity
Market
Market prices
Opening prices
Order flow
Price supports
Secondary markets
Securities trading volume
Stock exchanges
Studies
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Summary:For NYSE-listed IPOs, limit order submissions and depth relative to volume are unusually low on the first trading day. Initial buy-side liquidity is higher for IPOs with high-quality underwriters, large syndicates, low insider sales, and high premarket demand, while sell-side liquidity is higher for IPOs that represent a large fraction of outstanding shares and have low premarket demand. Our results suggest that uncertainty and offer design affect initial liquidity, though order flow stabilizes quickly. We also find that submission strategies are influenced by expected underwriter stabilization and preopening order flow contains information about both initial prices and subsequent returns.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2004.00701.x