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Evidence on Price Stabilization and Underpricing in Early IPO Returns

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Author Info

  • Daniel Asquith

    (Deloitte & Touche,)

  • Jonathan D. Jones

    (Office of Thrift Supervision,)

  • Robert Kieschnick

    (Federal Communication Commission)

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    Abstract

    Using data on 560 firm-commitment initial public offerings of common stock for the 1982-1983 period, we find that the cross-sectional distribution of one-day returns is modeled better as a mixture of two distributions, with the parameter estimates of one distribution being consistent with underpricing and the other with price stabilization. Further, the evidence that early IPO returns are drawn from a mixture distribution persists for at least four weeks. The implications of these results for the analysis of IPO returns are illustrated by examining the influence of a measure of ex ante price uncertainty on IPO pricing. Copyright The American Finance Association 1998.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 53 (1998)
    Issue (Month): 5 (October)
    Pages: 1759-1773

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    Handle: RePEc:bla:jfinan:v:53:y:1998:i:5:p:1759-1773

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    Cited by:
    1. Yue-Cheong Chan & Congsheng Wu & Chuck Kwok, 2007. "Valuation of global IPOs: a stochastic frontier approach," Review of Quantitative Finance and Accounting, Springer, vol. 29(3), pages 267-284, October.
    2. Boehmer, Ekkehart & Fishe, Raymond P. H., 2004. "Underwriter short covering in the IPO aftermarket: a clinical study," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 575-594, September.
    3. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "The Existence and Effectiveness of Price Support Activities in Germany: A Note," Discussion Papers 30, University of Bamberg, Chair of Finance.
    4. Ben Sopranzetti & Emilio Venezian & Xiaoli Wang, 2006. "The Market for New Issues: Impact of Offering Price on Price Support and Underpricing," Review of Quantitative Finance and Accounting, Springer, vol. 26(2), pages 165-176, March.
    5. Daniels, Kenneth N. & Vijayakumar, Jayaraman, 2007. "Does underwriter reputation matter in the municipal bond market?," Journal of Economics and Business, Elsevier, vol. 59(6), pages 500-519.
    6. Gresse, Carole & Gajewski, Jean-Fran├žois, 2006. "A Survey of the European IPO Market," Economics Papers from University Paris Dauphine 123456789/8670, Paris Dauphine University.
    7. Gajewski, Jean-Fran├žois & Gresse, Carole, 2006. "A Survey of the European IPO Market," ECMI Papers 1207, Centre for European Policy Studies.
    8. Kaustia, Markku, 2004. "Market-wide impact of the disposition effect: evidence from IPO trading volume," Journal of Financial Markets, Elsevier, vol. 7(2), pages 207-235, February.
    9. Clark Wheatley & Robert Brown & George Johnson, 2005. "Line-of-Business Disclosures and Spin-Off Announcement Returns," Review of Quantitative Finance and Accounting, Springer, vol. 24(3), pages 277-293, May.
    10. Schlag, Christian & Wodrich, Anja, 2000. "Has there always been underpricing and long-run underperformance? IPOs in Germany before World War I," CFS Working Paper Series 2000/12, Center for Financial Studies (CFS).
    11. Zheng, Steven Xiaofan & Li, Mingsheng, 2008. "Underpricing, ownership dispersion, and aftermarket liquidity of IPO stocks," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 436-454, June.
    12. Cook, Douglas O. & Kieschnick, Robert & Van Ness, Robert A., 2006. "On the marketing of IPOs," Journal of Financial Economics, Elsevier, vol. 82(1), pages 35-61, October.

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