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Price clustering and underpricing in the IPO aftermarket

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  • ap Gwilym, Owain
  • Verousis, Thanos

Abstract

This is the first paper to systematically investigate price clustering in new equity assets using a high frequency transactions dataset. We test the hypotheses that past price information and market maker activities are related to price clustering. We report that price clustering in IPOs is substantially greater than the clustering observed for non-IPO assets, which supports the hypothesis that the decision of going public is followed by haziness about the true price. Underpricing is a significant determinant of price clustering for order-book trades, which supports the notion that underpriced IPOs partially reflect price uncertainties. Tick size specifications can be restrictive for individual investors, while giving execution priority to market makers. The characteristics of price clustering for off-book trades differ substantially to price clustering in the order-book.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 19 (2010)
Issue (Month): 2 (March)
Pages: 89-97

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Handle: RePEc:eee:finana:v:19:y:2010:i:2:p:89-97

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Price clustering Microstructure Initial public offerings London Stock Exchange High-frequency data;

References

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Citations

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Cited by:
  1. Narayan, Paresh Kumar & Narayan, Seema & Popp, Stephan & D'Rosario, Michael, 2011. "Share price clustering in Mexico," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 113-119, April.
  2. Dorsman, André & Gounopoulos, Dimitrios, 2013. "European Sovereign Debt Crisis and the performance of Dutch IPOs," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 308-319.
  3. Verousis, Thanos & ap Gwilym, Owain, 2013. "Trade size clustering and the cost of trading at the London Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 91-102.

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